ChevronTexaco Announces Agreement to Acquire Unocal

ChevronTexaco Corporation and Unocal Corporation have announced that ChevronTexaco will acquire Unocal in a stock and cash transaction valued at approximately $18 billion, including net debt. The acquisition is subject to approvals by Unocal shareholders and certain regulatory agencies.

"Unocal is a unique independent with supermajor assets that are an excellent fit with our existing portfolio and our long-term strategies - to grow profitably in core upstream areas, build new legacy positions and commercialize our large undeveloped natural gas resource base," ChevronTexaco Chairman and CEO Dave O'Reilly said. "It is an attractive transaction that provides value in both the near- and long-term."

"Over the past several years Unocal has been highly successful in building a portfolio of major international and deepwater assets and prospects," said Charles R. Williamson, Unocal Chairman and Chief Executive Officer. "The combination with ChevronTexaco will provide the financial and technical resources to maximize the potential of these assets and prospects."

ChevronTexaco expects oil-equivalent production from the combined portfolios during 2006 to average about 3 million barrels per day. Unocal's 1.75 billion barrels of oil-equivalent proved reserves would increase ChevronTexaco's reserve base as of the end of 2004 by about 15 percent. The resultant weighting of natural gas reserves would increase by about 5 percentage points to roughly one-third of the oil-equivalent total. ChevronTexaco expects the transaction to be accretive to ChevronTexaco's prospective production growth rate.

Strong Strategic Fit
ChevronTexaco indicated the Unocal assets would provide an enhanced presence in several of the company's core areas of operations, including:

Asia Pacific - The combination of the two companies will place ChevronTexaco in the top tier of natural gas producers and marketers in this expanding and strategically important region. ChevronTexaco would become the top oil and gas producer in Thailand. In Indonesia, extensive oil and gas producing operations offshore in both the shelf and deepwater areas will augment ChevronTexaco's significant oil production, principally onshore. Unocal also markets through the Bontang LNG plant in Indonesia, complementing ChevronTexaco's current LNG production in Australia, as well as ChevronTexaco's planned development of natural gas fields in the greater Gorgon area of Australia and the shipment of LNG to markets in Asia and North America.

Gulf of Mexico - The acquisition will enhance ChevronTexaco's position in the Gulf of Mexico, where it is already a leading participant on the shelf and in deepwater opportunities such as Tahiti, Jack, Blind Faith and Great White. This, when combined with Unocal's position on the shelf, its interests in Mad Dog, St. Malo, K2 and Puma in the deep water, and its portfolio of exploration acreage, will further strengthen ChevronTexaco's Gulf of Mexico profile.

Caspian Region - The acquisition will give ChevronTexaco the second-largest interest in the Azerbaijan International Operating Company (AIOC) oil producing operations, broadening its status as a leading oil company in the Caspian region. With AIOC comes a share in the Baku-Tbilsi-Ceyhan (BTC) export pipeline, further expanding ChevronTexaco's position in Caspian oil export infrastructure.

Synergy Opportunities
O'Reilly said the company would target synergies in a number of operations and corporate functions by rationalizing duplicate activities and highgrading investment programs. The integration process will focus on combining the strengths of the two companies into a unified, high-performing enterprise. For example, ChevronTexaco's proven expertise in project execution, particularly in the deep water, will help leverage the full value of Unocal's major developments. There will also be opportunities to add value by adopting Unocal's operating best practices in ChevronTexaco.

ChevronTexaco expects disposition of assets following the close of the transaction to result in proceeds of more than $2 billion. Annual savings from operational synergies and reduced corporate expenses are estimated by ChevronTexaco at more than $325 million before tax.

Terms of the Acquisition
The acquisition consideration is structured as 75 percent stock and 25 percent cash, providing an overall value of approximately $62 per share based on the closing price of ChevronTexaco stock on April 1. Unocal shareholders may elect to receive either 1.03 shares of ChevronTexaco stock or $65 in cash for each share of Unocal stock; however, both of these elections will be subject to proration. In the aggregate, ChevronTexaco will issue approximately 210 million shares of ChevronTexaco stock and pay approximately $4.4 billion in cash. ChevronTexaco will also assume estimated net debt of $1.6 billion.

Effects on Future Financial Results
ChevronTexaco estimates the acquisition would be accretive on a cash flow per-share basis. Further, it will be broadly neutral to earnings per share after taking into account synergies and significant additional share repurchases. ChevronTexaco indicated plans for the repurchases, subject to board approval and consistent with liquidity, legal requirements, and maintaining the company's AA credit rating. Over the past year, ChevronTexaco repurchased $2.8 billion of its common shares, as part of a $5 billion repurchase program.

Integration Timetable
Following regulatory approval, the full integration of the two companies is expected to be completed in six months.

"We have very strong integration capabilities following the merger of Chevron and Texaco and intend to combine operations and achieve synergies quickly and efficiently," O'Reilly said. "At the same time, we remain strongly focused on enhancing our existing base business and increasing global production through development of our strong queue of capital projects.

"ChevronTexaco and Unocal share common roots in the oil fields of California and we believe we have highly compatible business cultures and values. A very attractive element of this combination is the opportunity to integrate two highly capable groups of employees to continue to drive world-class performance," O'Reilly said.

Williamson said, "In our discussions with ChevronTexaco it is clear that we share similar values and have comparable corporate cultures. This merger will be a good fit."

O'Reilly concluded by saying, "The immediate benefits of this combination are tangible and the longer-term value is even more compelling. We believe it will significantly enhance our company's position as a leading competitor and the partner-of-choice in the global energy industry."

Lehman Brothers is acting as financial advisor to ChevronTexaco Corporation. Pillsbury Winthrop Shaw Pittman LLP is acting as legal advisor. Morgan Stanley & Co. Inc. is acting as financial advisor to Unocal Corporation. Wachtell Lipton Rosen and Katz is acting a legal advisor to Unocal.

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Posted 04/04/05

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