The Strategist

Chevron-Anadarko deal will create oil giant

04/15/2019 - 07:57

Purchase of Anadarko Petroleum will allow oil giant Chevron to become the world's number two publicly traded oil company.

After acquisition of Anadarko Petroleum, the oil giant Chevron will become the leading operator of Permian, one of the most interesting oil fields in the world, receiving a corridor 75 miles across the heart of Permian. Before the deal, which is estimated at $ 50 billion, Chevron had already acquired 2.2 million acres in the Permian Basin in western Texas and in the south-east of New Mexico. Anadarko will add about another 250,000 acres, most of which are adjacent to Chevron’s properties.

A Rystad Energy analyst calls the Anadarko deposits "the tastiest morsel" of the western part of Permian. He expects that after the merger, the volume of their joint production at Permian will increase from 500,000 barrels per day to about 1.6 million barrels by 2025.

In the past ten years, introduction of fracking has allowed to start receiving rivers of oil from the Permian field, which was once considered depleted: production has jumped from less than a million barrels a day to more than 4 million barrels a day now. Now investments in this region are considered low-risk and pay off at the price of oil of about $ 45 per barrel. In addition, Anadarko has access to pipelines, which will also contribute to the growth of production.

This is the biggest deal in the oil industry since Royal Dutch Shell acquired BG for $ 53 million in 2015. In addition to assets in Permian, Chevron will also receive 400,000 acres in Colorado, deepwater deposits in the Gulf of Mexico and a mega-project to produce liquefied natural gas in Mozambique, where construction will soon begin.

Chevron will pay $ 65 for each Anadarko share (a premium of 39%). The company will pay part of the amount ($ 8 billion) in cash, the rest - by issuing 200 million additional shares. The combined company will produce 3.6 million barrels of oil and gas per day, second only to public ExxonMobil among public oil giants in this indicator. The combined free cash flow in 2018 was $ 36.5 billion. Analyst Roy Martin of WoodMackenzie says that "Chevron is now in the ranks of ultra-giants, and the big three are becoming the big four" (except for Chevron and Exxon, Shell, BP is included).

This deal is a serious step for Chevron CEO Mike Wirth and a great way out for Anadarko CEO Al Walker, who owns shares worth about $ 20 million. The integration of the companies will be led by Chevron Executive Vice President Joe Geagea.

Credit Suisse analyst notes that we should expect further consolidation of US oil companies. He sees that the market capitalization of research and manufacturing companies is now 30% lower than the net asset value, and will not be surprised at acquisitions of such companies as Pioneer Natural Resources, Parsley Energy, Callon Petroleum, Centennial Resource Development and Noble Energy.