Acquisition road to expansion in Energy markets

With the world's energy resources being tapped out, and regulation preventing the expansion of many energy infrastructure projects, acquisition is becoming the road to expansion, as the ChevronTexacoUnocal deal shows us:

ChevronTexaco's planned acquisition of Unocal reflects the tougher times companies face in discovering new oil and natural gas fields. Redoubling exploration isn't enough. If a company wants to grow, it must usually buy a rival.

Analysts said that reality was a major factor behind ChevronTexaco's agreement Monday to buy Unocal, a company that has a portfolio of oil and natural gas fields concentrated in Asia and the Gulf of Mexico. Those resources will add substantially to ChevronTexaco's proven reserves, a key industry yardstick that measures how much energy lies underground waiting to be tapped.

"The company has to have reserve growth," said John Kingston, global director of oil for Platt's, an energy information service in New York. "Wall Street considers it to be very important."

"The concern here is that overall, we're not replacing reserves at a sufficient level," Kingston added. "Or we are replacing them in places where there is a state-dominated oil company."