updated 4/4/2005 8:46:49 AM ET 2005-04-04T12:46:49

ChevronTexaco Corp., the nation’s second biggest oil concern, is buying rival Unocal Corp., the ninth biggest U.S. oil and gas exploration and production company, for about $16.4 billion in cash and stock.

Under the deal announced Monday, ChevronTexaco would also assume $1.6 billion of debt in the deal.

Unocal has been evaluating a possible sale and reportedly had also drawn interest from the Italian oil company Eni SpA and China National Offshore Oil Corp., a large Chinese state-owned company.

The deal would be the largest takeover in the oil sector in years, and comes as crude oil futures prices have been hitting record levels albeit they are still lower than the peaks reached in the 1980s in inflation-adjusted terms.

With energy companies struggling to boost their reserves, Unocal, based in El Segundo, Calif., has represented an attractive takeover target. Many of its assets are in Southeast Asia and they could help meet growing demand from China and India.

ChevronTexaco will issue about 210 million shares and pay about $4.4 billion in cash in the acquisition, which provides an overall value of about $62 per share based on the closing price of ChevronTexaco stock on Friday.

Unocal shareholders may elect to receive either 1.03 shares of ChevronTexaco stock or $65 in cash for each Unocal share. Unocal currently has about 270.6 million shares outstanding.

Unocal shares were down $3.85, or 6 percent, at $60.50 in recent premarket activity.

ChevronTexaco, based in San Ramon, Calif., expects disposition of assets following the close of the transaction to result in proceeds of more than $2 billion. Annual savings are anticipated to be more than $325 million before taxes.

The acquisition, which is subject to approvals by Unocal shareholders and certain regulatory agencies, is expected to be completed in six months.

ChevronTexaco expects oil-equivalent production from the combined portfolios during 2006 to average about 3 million barrels per day. Unocal’s 1.75 billion barrels of oil-equivalent proved reserves would increase ChevronTexaco’s reserve base as of the end of 2004 by about 15 percent.

ChevronTexaco expects the transaction will boost its prospective production growth rate.

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