Chevron and Unocal: Two of a Kind (A)
On Wall Street, mega-mergers are usually celebrated. After all, they portend layoffs, bumped up profit margins and investment banking revenues. What’s not to like? In the case of Chevron’s proposed $16 billion acquisition of Unocal, plenty. At least if you care about national security, the environment or what the rest of the world thinks about America.
Chevron, Texaco and Unocal cut quite a swath through the 20th century. With few limits placed on their behavior they amassed both wealth and political power. But the companies also left a wake of instability that is now, in the first fitful years of this new century, crashing down on society.
Chevron, for example, is a company that has relied on a partnership with a violent, undemocratic regime in Nigeria to derive a significant share of its crude oil supply. Unfortunately, for all the billions in revenue Chevron has reaped in Nigeria, its investment in the West African country has not helped fund the institutions necessary for a democratic movement in the country. On the contrary, oil money from San Ramon has poisoned the opportunity to increase American influence in the region.
To this day, Chevron’s government partners are widely believed to tap into oil pipelines to hijack oil. The practice, called “bunkering,” provides an estimated $3 billion to $15 billion of black market currency to thugs in Nigeria and elsewhere annually. Needless to say, the proceeds from the stolen oil are not going to finance a stable democratic Nigeria. In fact, the cash is almost certainly falling into the hands of anti-American interests in the region.
In this way, Unocal is a perfect fit for Chevron. Maybe this is what Wall Street means when they talk about “synergies” in mergers. In the late 1990s, Unocal tried desperately to go into the oil pipeline business with the Taliban in Afghanistan, hoping to put $250 million into the hands of the Taliban pre-9/11. Feminists and socially responsible investors, not Wall Street, helped block that deal. Today, it is Unocal’s 10.3% stake in the Azerbaijan International Oil Consortium and its 9% stake in pipelines designed to move oil from the Baku to Turkey that enticed Chevron.
Will Chevron learn from Nigeria and take this opportunity to improve America’s influence in this critically important region? Doubtful. After all, in 1999 Chevron acquired Texaco’s horrible legacy in South America and has done nothing to improve it. The abhorrent behavior of American companies in South America fermented such opposition to American interests that Congress felt impelled to approve nearly a billion dollars to provide military protection for American pipelines in the region.
Since Unocal’s most valuable assets lie just north of Iran, you can expect to see more of these types of expenditures. The cash-strapped Bush Administration will borrow most of the money needed to protect oil installations in the former Soviet states, but will also raise some through cuts like those to the National Science Foundation ($100 million in 2005 and 2006) and the science programs at the Department of Energy. Big Oil likes this strategy because it helps them now and later. Progress on energy issues is not on their agenda.
This merger sheds light on a sad fact: influence that took a century to develop won’t end until American investors (and citizens) figure out how to turn off the spigot of money propping up Big Oil – from the gas pump and from the halls of Congress. When that happens, small, innovative energy companies will have their day and mergers like this one won’t be viable or necessary. For the markets and for America, that day can’t come soon enough.