Chevron Corp. is considering a joint venture with Phillips Petroleum Co.'s chemicals unit and possibly buying Phillips' $1.1 billion natural-gas processing division.

Phillips told investors two weeks ago in New York that it was seeking joint-venture partners for its chemicals unit, which produces resins and basic petrochemicals used in plastics, a source familiar with the talks said. A venture with Chevron, the fourth-largest U.S. oil company, would create a chemicals business with about $5.4 billion in annual sales. Chevron and Phillips officials would not comment.

Phillips, the seventh-largest U.S. oil company, and Chevron want to cut costs to keep up with larger rivals created by recent mergers.

Phillips, which valued that division at $1.1 billion in February, wants to find a partner or buyer for the unit before the end of the year, a Phillips spokesman said today.

The Sunday Times of London reported today that Chevron is in talks to buy Phillips, and the Wall Street Journal Interactive edition said Phillips has been seeking a merger partner, possibly Chevron.

Chevron isn't leaning toward a merger with Phillips now because of Phillips' cost concerns in fixing problems at an oil field offshore Norway, the source said.