boost its presence in China's vast energy markets but may already have missed the chance to cash in on the lucrative oil distribution sector.

But on the upstream side, industry sources say the No. 3 US oil major, one of the first and most active players in China's offshore industry, would get more muscle to improve its profile if its proposed merger with Chevron goes through.

"By merging with Chevron, they will have a better portfolio, better opportunities and a larger balance sheet to work with. The bigger is better when it comes to oil companies,'' Gordon Kwan, oil analyst at Hong Kong-based HSBC told Reuters.

Texaco and Chevron announced in October a plan to form the world's fourth largest oil company in terms of oil and gas output, refining capacity and hydrocarbon reserves. The agreement is currently in the hands of the US anti-trust authority.

A combined Chevron-Texaco entity would have a market capitalisation of about $90 billion, still well off the top three global majors which are valued between $200 and $300 billion.

"With Texaco on board, we can definitely be a bigger player in China's upstream,'' a Beijing-based Chevron official said.

Chinese sources said earlier this month that Texaco was eyeing a stake in a billion-dollar public offering next year by long-time partner and China's third largest oil company, CNOOC.

Texaco has declined to comment on the reports, only to say that it "enjoys a successful partnership with CNOOC.'' "We plan to remain an active participant in China's offshore oil and gas industry,'' it said from its Houston headquarters.

Texaco entered China's upstream sector in 1983 when the country first opened the door to foreign investors.

It has six production sharing contracts with CNOOC, including the Huizhou oilfield in the South China Sea -- China's largest offshore producer pumping 42,740 barrels per day.

It also holds a share in the Bozhong oilfield in northern China's Bohai Bay Basin, which industry sources say is expected to yield 20 million tonnes, or 400,000 bpd, by 2005.

"Texaco has actually outplayed oil majors in China's upstream, having put in more money and made more discoveries,'' said a Beijing-based executive with one European oil company.

Analysts said a stake in CNOOC could provide Texaco fresh opportunities in new offshore blocks and options to participate in a huge coastal gas distribution project.

But if it is eyeing a stake in CNOOC, it would be a late, last dash to try and get more leverage in the world's third largest and fastest growing energy market.

Global majors Exxon Mobil, BP Amoco and Royal Dutch/Shell Group already have secured big chunks in China's top oil firms Sinopec and PetroChina.

Shell has pledged to pay up to $300 million for a 20 percent stake in CNOOC, which is expected to launch its initial public offer in February, and BP has plans to invest up to $200 million in CNOOC stock.

"Any oil companies who want to operate in China have to be in joint venture with either PetroChina, Sinopec or CNOOC,'' said HSBC's Kwan.

BP, Shell and Exxon Mobil have made big inroads this year into China's oil and gas distribution by paying more than $2 billion for stakes in PetroChina and Sinopec.

They will soon operate hundreds of petrol stations in China's booming east coast.

Industry sources said that notably absent from China's distribution sector is Caltex, the joint-venture downstream arm of Texaco and Chevron, which refines, markets and distributes oil products throughout Asia, Africa and the Middle East.