"We are reiterating our Buy rating on Texaco, with a 12- to 18-month stock price objective of $70 per share," says Edward F. Maran, integrated oils analyst for A.G. Edwards & Sons Inc. in St. Louis. Headquartered in White Plains, New York, Texaco is an integrated, international energy company engaged in the exploration and production of crude oil and natural gas, the manufacturing of petroleum products, product distribution and marketing. At year-end 1999, the company's worldwide reserves totaled 5.5 billion bbl. of liquid hydrocarbons and 8.1 trillion cu. ft. of natural gas. Maran's favorable investment outlook for Texaco is driven by several factors: increased profitability upstream; exploration success; and profitable growth in gas, power and the international downstream. With a heavy emphasis on exploration and production and no petrochemicals, "Texaco is strategically repositioning itself to earn higher returns on capital at lower oil prices," says the analyst. "First, TX is high-grading its [upstream] portfolio by selling producing assets with high operating costs while investing only in those megaprojects that are expected to have low operating costs." Says Maran, "The company believes it will increase margins sufficiently so that it can grow upstream earnings by a minimum of 10% per year in a flat price environment-even with production growth of only 2% to 4% per year." Texaco's exploration program focuses on three of the more exciting plays in the world: offshore Nigeria, offshore Brazil and the Gulf of Mexico. Each of the wildcat wells it is drilling this year in these focus areas has the potential to deliver more than 150 million barrels of recoverable reserves and 50,000 to 100,000 barrels of production per day, Maran says. Texaco's recent billion-barrel Agbami discovery offshore Nigeria is among the largest single finds to date in deepwater West Africa. "This discovery and Texaco's surrounding acreage position will provide a core growth area for the company." In 1999, the company increased total reserves for the fourth consecutive year, announcing reserve replacement of 137%. It also extended its reserve life to 10.3 years-the longest in more than 20 years. In 2000, Texaco is expected to increase its upstream spending by 50%, to $3.5 billion. As part of its effort to earn higher returns on capital, Texaco is also planning to cut costs and increase efficiency in its downstream joint ventures: Caltex in Asia, Equilon in the eastern U.S. and Motiva in the western U.S. Meanwhile, the company is focusing on new fuel cell and gas-to-liquids technologies, and has initiatives under way to grow in global power generation. Power generation projects that usually utilize Texaco's proprietary gasification process typically generate returns of 15% or more and those returns do not fluctuate with the price of oil, Maran says. The analyst believes that Texaco is attractively valued. "It is trading at a discounted price-to-earnings multiple that is undeserved, given the company's strong outlook for earnings-expected to double this year-its asset base and long-term growth opportunities." Note: Analysis took place 7-7-00 when TX closed at $53.69 and was reaffirmed 7-27 when $50.31. Currently, some 546 million shares are outstanding. The recent 52-week price range was $68.50-$39.50.

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