Chevron Corporation (NYSE: CHV) and Texaco Inc. (NYSE: TX) today announced a merger that will create a company — ChevronTexaco Corporation –?that ranks with the world’s largest and most competitive international energy companies.

The merger joins two leading energy companies and long-time partners to create a U.S.-based, global enterprise that is highly competitive across all energy sectors. ChevronTexaco will have world-class upstream positions in reserves, production and exploration opportunities; an integrated, worldwide refining and marketing business; a global chemicals business; significant growth platforms in natural gas and power; and industry leading skills in technology innovation.

The combined company expects to achieve annual savings of at least $1.2 billion within six to nine months of the merger’s completion. The merger, to be accounted for as a pooling of interests, is expected to become accretive to the new company’s earnings and cash flow per share upon realization of the savings. The company also expects to improve capital efficiency by funding the best growth opportunities of Chevron and Texaco, resulting in improved return on capital employed over time.

The new company will have reserves of 11.2 billion barrels of oil equivalent (BOE), daily production of 2.7 million BOE, assets of $77 billion, and operations throughout the world. In the United States, ChevronTexaco will be the nation’s third largest producer of oil and gas, with production of 1.1 million BOE per day, and will hold the nation’s third largest reserve position, with 4.2 billion BOE of proved reserves.

In the merger, Texaco shareholders will receive .77 shares of Chevron common stock for each share of Texaco common stock they own, and Chevron shareholders will retain their existing shares. The exchange ratio represents approximately $64.87 per Texaco share based on Chevron’s closing stock price of $84.25 on October 13, 2000. The exchange ratio represents an 18% premium based upon Texaco’s closing share price on October 13, and a 25% premium based upon the two companies’ average relative share prices during the 30-day period through October 13. As a result of the merger, Chevron shareholders will own approximately 61 percent of the combined equity, and Texaco shareholders will own about 39 percent. The combined company would have an enterprise value of more than $100 billion.

Dave O’Reilly, Chevron chairman and chief executive officer, will serve as chairman and CEO of ChevronTexaco, which will be headquartered in San Francisco. Peter Bijur, Texaco chairman and CEO, will become a vice chairman of the combined company with responsibility for downstream, power and chemicals operations. Richard Matzke, Chevron vice chairman for upstream operations, will retain those responsibilities in the combined company. The composition of the ChevronTexaco Board of Directors will be approximately proportional to the equity split and will be drawn from current members of the Chevron and Texaco boards. Chevron Vice President and Chief Financial Officer John Watson and Texaco Senior Vice President and Chief Financial Officer Patrick Lynch will lead the integration process.

“This merger positions ChevronTexaco as a much stronger U.S.-based global energy producer better able to contribute to the nation’s energy needs,” said O’Reilly. “That’s good news for the country because the United States will have an additional top-tier energy company better positioned to compete effectively with the international majors.

“ChevronTexaco,” O’Reilly continued, “will create greater value for the shareholders of both companies. We’ll be positioned for stronger financial returns than could be achieved by either company separately, partly through significant cost reductions, but mainly because we’ll have a much broader mix of quality assets, skills, and technology. We’re committed to being first in our industry in total shareholder return, and this transaction will help us accomplish that objective.”

Bijur said: “These two companies form a powerful combination that will have the strength and resources to compete and succeed around the globe. Texaco and Chevron are natural partners, whose historic relationship and operational fit are highly complementary. We know each other well, and we already have long, highly productive experience working together in both the upstream and downstream, giving us an advantage in integrating the companies.

“We also share common values including protection of the environment, active support for the communities where we operate, and promoting diversity and opportunity in our workforce and among our business partners,” Bijur continued.