All hands to the pumps as Chevron eyes up Texaco

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The Independent Online

Two of America's biggest oil companies are on the brink of a $90bn (£62bn) merger.

Two of America's biggest oil companies are on the brink of a $90bn (£62bn) merger.

Chevron, the second biggest US producer, is understood to have re-opened talks with Texaco and could be close to making a $37bn offer. The deal would put the new company into the premier league of oil mega-groups, which include BP Amoco, Total Fina and ExxonMobil.

The industry has seen lightning consolidation over the past two years, and Chevron has long made it clear that it is on the lookout for a suitable partner. Original talks between the companies were held when the oil price was considerably lower than the $30 a barrel level of this year. Despite the rally, analysts are still convinced that further rounds of mergers will be necessary to ensure the survival of some middle-ranking oil groups.

Chevron and Texaco originally entered negotiations in 1999, but the talks collapsed. Texaco's rejected the $70 a share offer as being too low, though analysts doubted the two companies were capable of reaching any agreement.

But times have changed. In January, Kenneth Derr retired from the joint posts of chief executive and chairman of Chevron, and his successor, David O'Reilly, is known to be more conciliatory in his approach to the project.

Also Texaco, whose defence by chief executive Peter Bijur last year rested on promises to investors of lifting its share price, has not managed to deliver. Texaco's shares have tumbled more than 12 per cent since the two companies first talked. Chevron has dropped 16 per cent over the same period.

US anti-trust regulators have taken a hawkish approach towards big mergers in the sector but analysts believe that the creation of another large American oil champion may be in the national interest.