ChevronTexaco CEO defends Dynegy-Enron investment

ChevronTexaco Corp. CEO David J. O’Reilly Monday defended the oil company’s decision to back Dynegy Inc.’s proposed buyout of troubled energy marketer Enron Corp., despite a raft of shareholder lawsuits filed against Enron.

The litigation is “high on our radar scope,” O’Reilly said, and the company is paying close attention to any potential liability that might arise from it. “That’s a question we will have to call when we get there,” he said.

While the litigation issue is “big and complex,” O’Reilly said there are methods to measure the risk. “That was a risk we were quite willing to take,” noting the deal is partly secured by Enron assets.

ChevronTexaco agreed on an immediate cash infusion of $1.5 billion to help stabilize Enron’s trading operation. At closing, ChevronTexaco will invest an additional $1 billion in equity into the new company. ChevronTexaco owns a 26.5 % stake in Dynegy.

The major oil company also has the right to purchase an additional $1.5 billion in Dynegy common stock for up to 3 years after the merger is completed. If the deal doesn’t get done, Dynegy will have the right to acquire 100% of the equity in Enron’s Northern Natural Gas subsidiary.

O’Reilly told Wall Street analysts the decision to invest $2.5 billion in Dynegy reflected ChevronTexaco’s strategy to increase investment in the growing energy convergence marketplace. ChevronTexaco’s participation offers a combination of significant upside potential and terms that will protect the investment, he said.

O’Reilly said Chevron originally wanted to get into the gas trading business but realized “we just couldn’t catch up” with Dynegy, the impetus for its investment in the Houston energy trader and marketer. “This is our means of participating in that business,” he said. ChevronTexaco now has multiple commercial relationships with Dynegy.

After a month long financial meltdown at Enron, Dynegy Nov. 9 agreed to buy its bigger cross town rival Enron Corp. in a stock deal valued at $8.5 billion and to assume $15 billion of Enron debt. Terms of the transaction call for Dynegy to swap 0.2685/share for each Enron share.

Enron is presently the subject of an investigation by the Securities and Exchange Commission into off-balance sheet transactions, some of which were related-party transactions. These special entities were at the core of the unraveling of the huge company that has been considered the market leader in wholesale energy trading for years. Enron has said it is cooperating with the investigation and has done nothing wrong.

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