21 April, 2005

Multi-billion-dollar backscratch

A month ago, it looked like the Chinese National Overseas Oil Company, CNOOC, was going to buy Unocal. But people who have been around the block knew that the U.S. would never let a foreign company buy such a strategic asset. I asked around, "how do they do it?" That is, what invisible fist would they come up with to out-roshambo the invisible hand of an open auction? It didn't make any sense.

But sure enough, a couple weeks ago, the news came down from the great green flatlands of the Hacienda Industrial Park in San Ramon, California, home of ChevronTexaco: All your Unocal are belong to us.

Whaaa? Why did ChevTex agree to spend a couple billion extra bucks outbidding the Chinese? Shareholders reacted badly, costing the company about $8 billion in market capitalization. (Market cap is the market price of the company, should you feel the urge to max out your gold card.)

(Here's the math: Up to the April 4 announcement, the stock had been tracking the industry but with that money-wasting decision, the stock started its 11.9% drop in just over 2 weeks. In that period the industry as a whole lost only 7% of its value. With 2.1 billion shares outstanding, that 3.9% fall means about an $8 billion extra loss of equity. The company would have lost money either way over this period, as dropping oil prices mean that speculators are getting temporarily out of the market. But if the company had fallen in sync with the rest of the industry, it would have lost only $14 billion in equity, instead of the $22 billion it lost.)

But if you are among the legions of rhinocrites who hold ChevronTexaco stock, you have nothing to fear but Phil himself. For fume-huffers in Congress have found a way to pay back not just the patriots at ChevronTexaco, but the whole network of America-loving oil giants: an $8 billion tax cut. Now I have no idea whether this is intended as some sort of payback or not, but if so, it's pretty heavyhanded.

I mean, usually, if a policy is opposed to the Bush Administration, it's a good bet to support it first and ask questions later. But incredibly, this proposal attacks the Bush Administration for being too friendly to renewable energy.
The House legislation, approved last week by the Ways and Means Committee, is at odds with the Bush administration's approach. The president's proposed budget calls for $6.7 billion in tax breaks for energy, with 72 percent going toward renewable sources of energy and energy efficiency, compared with about 6 percent in the House plan...

House Republicans stood by the measure, which provides the $8 billion in tax savings over a 10-year period. It was approved by the committee in a 26 to 11 vote that was generally along party lines but with five Democrats supporting the legislation and one Republican voting against it.
The legislation was pushed by Bill Thomas, whose district includes the Kern County oilfields that produce more oil than the entire state of Oklahoma. The biggest oil producer in Kern County is also the company that first struck oil in the region, the same company that has run the county for a century. ChevronTexaco.

(And in case the feds don't help enough, the company is also asking impoverished Bay Area counties for a $44 million property tax rollback. Of that reduction, the S.F. Chronicle reports, Chevron is seeking the biggest reduction, $21 million.)

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