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Texaco To Acquire Tana Production Corp. For $476.5 Million

October 21, 1989

NEW YORK (AP) _ Texaco Inc. said Friday it has agreed to acquire Tana Production Corp. in a deal valued at $476.5 million - part of a continuing effort to expand oil and gas reserves and Texaco’s first major purchase since completing a massive restructuring earlier this year.

The merger with Corpus Christi, Texas-based Tana Production, a subsidiary of TRT Energy Holdings Inc., includes the purchase of 435 billion cubic feet of natural gas and about 4 million barrels of oil located in 17 South Texas fields, Texaco said.

Texaco will pay $95.1 million in cash and the remaining $381.4 million in shares of a new, non-voting issue of Texaco Series E variable-rate preferred stock.

The acquisition, subject to the approval of government regulators, is expected to be completed by the end of the year, said Texaco, based in White Plains, N.Y.

″We have long said that our selected focus is to maintain a strong reserve base in the United States,″ said Texaco President James W. Kinnear. ″This agreement ... will increase Texaco’s domestic reserves at a very attractive price.″

Industry analysts said the merger was not a surprise.

″Now that they have reduced debt significantly, they can do this,″ said Frank P. Knuettel, analyst with Prudential-Bache Securities Inc. ″Texaco has made a number of sales; this is their first big buy.″

Some analysts said the purchase was significant in that it showed a reversal from recent years when Texaco entered Bankruptcy Court and underwent a major restructuring.

″This sets a new course in terms of reversing the direction of the last couple of years when they were divesting assets,″ said Michael Young, analyst with Smith Barney, Harris Upham & Co.

Texaco filed for protection from its creditors under Chapter 11 of the federal bankruptcy laws in April 1987 to avoid having to post a multibillion- dollar security bond in its fight with Pennzoil Co.

Pennzoil had sued claiming Texaco’s 1984 acquisition of Getty Oil Co. interfered with Pennzoil’s prior contract to buy part of reserve-rich Getty. A Houston jury awarded Pennzoil a $10.3 billion judgment. Texaco appealed but eventually settled with Pennzoil for $3 billion.

Earlier this year, Texaco completed a major restructuring that involved the sale of some $7 billion in assets. Last year, Texaco turned a profit of $1.3 billion, compared with a 1987 loss of $4.14 billion. Texaco has said the company expects a further improvement in 1989.

The Tana purchase strengthens Texaco’s position as a seller and producer of natural gas in the United States, Kinnear said. Texaco already is one of the largest producers of natural gas in this country.

″We feel that natural gas is a fine fuel for the future for the highest and best use - for home heating, for power generation, for cogeneration and for environmental concerns.″

Kinnear said, however, he does not expect natural gas to challenge gasoline as a motor fuel.

Texaco, starting with the 1984 acquisition of Getty Oil, has attempted to improve its eroding domestic reserve base.

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