OIL: Coup for Texaco

The richest plum among the oil industry’s independents finally fell last week, and it went to one of the strongest integrated majors. In an $810 million deal, Texaco, No. 2 U.S. producer—No. 1: Standard Oil Co. (N.J.)—and refiner, bought California’s profitable Superior Oil Co., whose earnings last year totaled $39.20 a share. Superior stockholders will get 24 shares of Texaco for each share they now hold; Texaco will then absorb Superior’s holdings and dissolve the company.

Texaco gets a company rich in reserves to protect itself against trouble in the Middle East. Though it has large holdings in Louisiana and Canada, 40% of Texaco’s oil comes from a 30% interest in Saudi Arabia’s Arabian American Oil Co., a 7% interest in the Iranian consortium, and a 50% interest in Caltex operations in Sumatra and elsewhere. To back them up, Texaco bought Trinidad Oil Co. Ltd. in 1956, last year added Seaboard Oil Co. Now with Superior, it gets big production in Venezuela’s rich Maracaibo field, crude-oil reserves of well over 300 million bbl., plus excellent drilling prospects in Texas and Louisiana.

$1,825 per Share. It also gets a prime profitmaker. Though Superior’s $1,825 per-share purchase price seems very high (46 times earnings), Texaco knows that the reason is due to a curious bookkeeping quirk. Superior charges off all drilling costs in one year against overall earnings, rather than amortizing such capital expenses against individual properties over a period of years. By shifting to standard accounting, the net per share would double, and the price-earnings ratio drop to about 25 to 1.

Superior’s Chairman William Keck does just as well. With 51% of Superior’s 422,264 shares, he and his family will get $413 million in stock. The swap is nontaxable, since no cash changes hands. The only tax is on the income from their 5,168,500 shares of Texaco. Annual income, at Texaco’s current $2.35 payout: $12.4 million.

End of a Fight. For old Bill Keck, it was the end of a long fight to stay independent in an age of integration and merger. A California wildcatter who first struck it rich in 1922, he steadfastly refused to go into refining and marketing, or merge with anyone who did. But now, at 79, he is growing weary of the fight and realizes that a producer must have markets to remain strong. Says a Keck aide: “It has simply become too difficult to do business. Without refinery facilities, we have no import quotas of our own and are entirely at the mercy of the majors. When they want our oil, we move it. When they don’t, it sits there. The sale to Texaco, which has tremendous refining capacity, was a natural.”