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SAN FRANCISCO -- When touting the benefits of its acquisition of Texaco Inc. last year, Chevron Corp. said it expected the synergies from the companies' combined operations would save millions and yield shareholders a greater return.
Those results were nowhere to be found yesterday as ChevronTexaco Corp., operator of more than 2,700 convenience stores, reported a fourth-quarter loss of $2.52 billion. The oil company said the poor performance was fueled by a combination of costs from its merger and oil prices that have crumbled over the past year.
Chairman and Chief Executive Dave O'Reilly called the results "disappointing," a refrain repeated by analysts and investors as the company's stock dropped as much as 5 percent, according to Reuters.
ChevronTexaco, created in a $38 billion combination last year, is hardly alone in its misery. Also on Tuesday, Marathon Oil Co. reported a loss of $898 million and Unocal Corp. showed a loss of $29 million.
As the U.S. recession hampered demand for gasoline, creating a surplus of oil in storage, crude prices dropped by 35 percent in the fourth quarter compared with the same period the previous year. Even four production cuts by OPEC in the last 12 months have failed to revive oil prices. Crude averaged just over $20 a barrel in the fourth quarter, similar to current prices.
ChevronTexaco was also stung by charges of $1.2 billion relating to its merger, including $700 million for job cuts and $150 million for asset sales. The combined company is cutting 4,500 jobs, or about 8 percent of its staff. The oil giant said it would also face additional merger costs in future quarters and revised its merger expenses to $2 billion, or $500 million more than its initial estimate.
O'Reilly said he had to make "some difficult decisions on investment priorities" after the merger, adding that those moves had "unfavorable impacts" on earnings.