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The Honolulu Advertiser
Posted on: Tuesday, May 8, 2001

Mergers fuel big-energy growth

USA Today

The day the average nationwide price of unleaded regular gasoline hit an all-time high of $1.68 a gallon, big energy got bigger.

Valero Energy Corp.'s Bill Greehey, left, and Ultramar Diamond Shamrock Corp.'s Jean Gaulin yesterday announced that Valero would buy Ultramar for $4 billion in cash and stock, creating the nation's second-largest oil refiner.

Associated Press

• Valero Energy said yesterday that it was acquiring rival Ultramar Diamond Shamrock for $4 billion in cash and stock, assuming $2.1 billion in debt. It will create an oil refiner second in size only to ExxonMobil. The combined company will refine 1.9 million barrels of oil a day at 13 refineries.

Valero will also get a 4,600-mile pipeline network and more than 5,000 gasoline stations branded Ultramar, Diamond Shamrock, Beacon and Total.

• Williams Cos. will acquire Barrett Resources for $2.5 billion in cash and stock, and assume $300 million of debt. That will nearly triple Williams' natural gas reserves to 3.3 trillion cubic feet and create the nation's 10th-largest natural gas producer.

Motorists' organization AAA criticized the Valero deal as anti-competitive and destined to cause higher pump prices.

Companies justify the mergers by saying that they'll create more efficiency and that consumers will benefit in the long run, said Jeff Sundstrom, spokesman for AAA. "We haven't seen anything that squares with that."

The group reported yesterday that the average price for regular gasoline is $1.68, topping a high set June 21 of last year.

James Keyes, chief executive officer of 7-Eleven, said he supports consolidation even though his company has no oil fields or refineries and must buy 2 billion gallons of gasoline a year for resale. In recent years, smaller refiners have not invested in expansion because their profits were too slim, which resulted in the supply shortage that is now driving prices up, Keyes said.

Over the long term, consolidation will solve the shortage and lower prices, he said.

"We understand consumer fears, but much of the fear is generated by a lack of understanding of the mechanics of the industry."

Times have been good recently for the energy industry, creating the optimism that drives mergers, according to energy analyst John Gerdes of Raymond James. Energy mergers remain relatively hot, while mergers of all types are down 58 percent from last year, according to Thomson Financial/Securities Data.

Antitrust regulators are sure to take a look at the Valero deal, Gerdes said. But he added that there are three refinery competitors in each region and doubts regulators will intervene.