Chevron pumped up over $50bn acquisition of Anadarko

Andrew Cummings
April 13, 2019

A Chevron gas station sign is pictured at one of their retain gas stations in Cardiff, California October 9, 2013.

Chevron announced that it has entered into a definitive agreement with Anadarko Petroleum to acquire all of the outstanding shares of Anadarko in a stock and cash transaction valued at $33 billion, or $65/share.

Anadarko had $13.4 billion in revenues previous year and pumped 666,000 barrels of oil equivalent per day.

Chevron, which already has 2.3 million acres in the Permian Basin, said the deal to buy Anadarko would give the combined company a 75-mile (120-km)-wide corridor across the Permian's DE basin, on the Texas-New Mexico border.

"Chevron now joins the ranks of the UltraMajors - and the big three becomes the big four", wrote Roy Martin, senior analyst at Wood Mackenzie, referring to Exxon, Shell and BP.

The acquisition comes as the USA has reversed a decades-long decline in oil production, thanks to new technology that has allowed it to tap hitherto unreachable, so-called "tight oil", that had been locked deep beneath the surface in shale rock.

"The combination of Anadarko's premier, high-quality assets with our advantaged portfolio strengthens our leading position in the Permian, builds on our deep-water Gulf of Mexico capabilities and will grow our LNG business", Chevron's Chairman and Chief Executive Officer Michael Wirth said in a statement.

Chevron said the combined entity would have had daily output of 3.596 million barrels equivalent of oil previous year, compared with Shell's 3.666 million.

"The strategic combination of Chevron and Anadarko will form a stronger and better company with world-class assets, people and opportunities", he said.

Chevron's pledge to restrain expenditures has made it a favorite among energy stocks, with its shares up 13.8 percent this year. That means all the shares issued to buy Anadarko will be retired in less than five years.

"This is a megadeal that cements the trend of big oil companies taking over the US shale industry, with more acquisitions to come", said John Kilduff of Again Capital.

The merger would be the sixth largest in the industry and the biggest since Shell bought BG Group for £47... Shares of Apache Corp, which also has extensive acreage in the Permian Basin, jumped 7 per cent in premarket trading, while Pioneer Natural Resources Co rose 6 per cent.

The transaction vaults Chevron into the rarefied air of rivals Exxon Mobil Corp. and Royal Dutch Shell Plc, which in turn may be roused to make acquisitions of their own.

The companies say the deal creates a 75 mile corridor across the DE basin portion of the Permian.

"It creates attractive growth opportunities in areas that play to Chevron's operational strengths and underscores our commitment to short-cycle, higher-return investments".

Chevron shares fell 4 per cent as investors weighed the cost of the deal, which includes taking on $15 billion of Anadarko's debt. Chevron now expects its unconventional net oil-equivalent production in the Permian to reach 600,000 bpd by the end of 2020, and 900,000 bpd by the end of 2023.

The transaction has already been approved by the Boards of Directors of both companies and is expected to close in the second half of the year.

Anadarko rose as much as 35 per cent to US$63.23 in NY, but didn't trade above the offer price, implying investors don't expect a bidding war.

"This deal seems ideal".

For Chevron, the second-biggest United States oil company after Exxon Mobil, the takeover of Anadarko marks its biggest deal since its purchase of Texaco, which closed in 2001.

Occidental Petroleum Corp, another company with assets in the Permian, bid more than $70 per share for Anadarko and is now considering options, sources said.

-Chevron expects the deal to add to free cash flow and earnings per share one year after closing, at US$60-a-barrel Brent.

The enterprise value of deal is $50 billion.

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