ChevronTexaco plays major role in California energy market

ChevronTexaco strides a global stage but also plays a central role in the energy dramas unfolding every day in California. In a state where changing prices at the pump make headlines, ChevronTexaco controls nearly one-fifth of the retail market for gasoline. Federal antitrust regulators made their approval of last year's merger between Chevron and Texaco conditional on Texaco's divestiture of its stake in Equilon, a joint venture with Shell that owns refineries and service stations in California.
With Equilon, ChevronTexaco would have controlled more than 33 % of the state's retail market, according to state Attorney General Bill Lockyer. Even after the Equilon divestiture, ChevronTexaco remains California's No. 1 refiner, with its Richmond facility and an even larger one in El Segundo serving Southern California.

California's strict rules requiring refiners to formulate gasoline to reduce air pollution make it a challenge to do business in the state, said Fred Gorrell, a ChevronTexaco spokesman. Those rules challenge the market by restricting the interstate flow of oil in response to market conditions, while California's "refining capacity is pretty tight compared with demand," he said.
As the state's biggest refiner, ChevronTexaco weighed in on the controversy about MTBE -- the fuel additive that has polluted water supplies -- by urging the state to stick to its original plan to impose an end-of-the-year ban. Gov. Gray Davis has decided to extend the use of MTBE through 2003. ChevronTexaco was also in the spotlight earlier this year as it negotiated contracts covering thousands of unionised refinery workers.

ChevronTexaco is also a key supplier of fuel to power and move the world's fifth-largest economy. With oil fields in the San Joaquin Valley, it is the state's number one crude oil producer. But last year, ChevronTexaco wrote down the value of its Midway-Sunset reserve, the state's largest oil field, by $ 1 bn, after it cut an estimate of the level of economically recoverable reserves that dated from Texaco's 1997 purchase of that field.
Production at Midway-Sunset is boosted by using natural gas to heat water and make steam to inject underground. Some industry publications have ascribed losses at such fields to California's energy crisis, in which natural gas prices soared, boosting profits at ChevronTexaco and its Dynegy affiliate. But those high natural gas prices curtailed steam production and injection, sometimes resulting in the permanent loss of a portion of those deposits. Gorrell said he couldn't confirm that was what happened at Midway-Sunset.

ChevronTexaco also could play a role bringing more fuel from Alaska. ChevronTexaco and BP signed a 1998 lease to explore for oil inside the Arctic National Wildlife Refuge -- if and when such exploration gets a green light from the federal government.