DIAMOND SHAMROCK <DIA> TO RAISE SHARE VALUES
Diamond Shamrock executives said that
to reduce the vulnerability to takeover pressures, they want to
raise the value of the two companies to be formed by splitting
Diamond Shamrock.
    "If we can get the price up to the value of the company, we
will not be vulnerable to takeover pressure," said Charles
Blackburn, Diamond Shamrock's president and soon to be chief
executive officer of the new exploration and producing company
whose name has not yet been decided. He was visiting New York
for talks with investors.
    After successfully countering a takeover bid launched by T.
Boone pickens in January, Diamond Shamrock said it would
spinoff its refining and marketing operation into Diamond
Shamrock Refining and Marketing Co before its April 30 annual
meeting.
    Blackburn told Reuters, "Our advisors told us that a split
would give a better share value to investors and that the
market would give better multiples for pure refining and
marketing and exploration and production plays."
    The two companies are now in the process of organizing
themselves to become "pure plays," the executives said.
    Blackburn said the new company would be a pure exploration
and production operation and that he was looking to divest
non-oil and gas operations, particularly Diamond Shamrock's
coal operations.
    Blackburn said that "we are in talks about coal operations
but I cannot discuss this further at this time."
    He said the company would have a debt-to-capital ratio of
about 38 pct, which could be paid down over time.
    Blackburn said the company would seek to generate further
internal savings from rationalizing operations and personnel
reductions. He has set a goal of 73 mln dlrs in internal
savings and "we need to get at least 20 mln dlrs of that savings
in 1987," Blackburn said.
    "I would rather describe this as savings coming from
eliminating non-essential activities as we purify the
exploration and production business."
    "There are some people associated with those activities but
it is more a matter of cutting and trimming rather than
wholesale changes," Blackburn said.
    Blackburn intends to run a tight ship in which dividends
will not initially be paid and the resultant savings invested
into exploration and production.
    "Our goal is to find 20 mln barrels a year in the U.S. to
replace our production and I think that we can do this at the
level we intend to spend," Blackburn said.
    "It might be more difficult to find more oil and more oil
internationally at these levels," he added.
    Blackburn said that his new company would spend 75 mln dlrs
in North America and 90 mln dlrs overseas, mainly Indonesia, in
the search for oil and gas reserves.
    In 1986 Diamond Shamrock produced 82,473 mln barrels a day
of oil with 83 pct of that from Indonesia, while gas output was
265.6 mln cubic feet a day of which 98 pct was in the U.S.
    Blackburn said that he believed he could find oil to
replace this production at low costs which were 4.97 dlrs a
barrel worldwide and 3.88 dlrs a barrel in the U.S..
    Blackburn also said that the company would be willing to
buy reserves, "if we can find the right producing properties at
the right price".
    Blackburn estimated that oil prices will average about 18
dlrs a barrel this year with average prices received for
natural gas at 1.57 dlrs per thousand cubic feet.
    Blackburn said he currently estimates that at thee prices
for its products the company will have a cash flow of about 280
mln dlrs.
    "This will mean a net negative cash flow as we pretty much
spend our cash flow to find more oil and gas."
    Blackburn said the company will search for both oil and gas
"almost exclusively in estasblished basins".
    Roger Hemminghaus, who will be chairman of the new Diamond
Shamrock Refining and Marketing Co, which last year had sales
of approximately 1.6 billion dlrs, told Reuters his company was
taking on some debt.
    "We are taking on some 400 mln dlrs new debt with three tier
financing emphasizing a revolving loan, some term loans and
some unsecured private placement and are now in the latter
stages of signing an agreement."
    Chemical New York Corp <CHL> is the company's lead banker
on the loan, Hemminghaus said.
    That debt will set the company off at a 60 pct debt-to-
capital-ratio, which Hemminghaus said "is too much. To
alleviate that we will hold our capital expenditures down and
pay down debt so that at the end of two years that ratio will
be reduced to mid 40 pct range."
    Hemminghhaus said that cash flow will be "plus or minus
about 100 mln dlrs a year from earnings and depreciation."
    In terms of major projects, Hemminghaus said that capital
expenditures will be 35 mln dlrs to 50 mln dlrs spread over all
of the company's projects.
    Its major project will be a two year upgrading project on
its McKee reinery in the Panhandle at 90,000 bpd rated
capacity.
    The company also has a refinery south of San Antonio where
it will be headquartered with a capacity of 35,000 bpd.
 Reuter
