Chevron vaults into new league on $33B Anadarko acquisition

Jeannie Matthews
April 16, 2019

Anadarko builds one the largest liquid-natural gas-exporting facilities of the world in Mozambique.

"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.

Shell was seen as the leading contender to buy privately owned Permian producer Endeavor Energy, people familiar with the transaction told Reuters, but the two companies have, so far, failed to agree on Endeavor's valuation.

These companies are turning to shale and its revolutionary techniques of fracking, blasting sand and water into formations to extract oil.

Expenses from that project are expected to reach $4bn over several years. The United States is also now the third-largest producer of LNG, super-cooled natural gas that enjoys record demand as a cheaper, cleaner alternative than coal for power generation.

Anadarko had US$13.4 billion in revenues previous year and pumped 666,000 barrels of oil equivalent per day. Measured by cash flow, Chevron said in a statement it would have generated a combined US$36.5 billion with Anadarko past year, slightly ahead of Exxon's US$36 billion. Carl Larry, market development manager with Refinitiv, a global provider of financial market data, said that's likely to change with Chevron's purchase of the company. The stock now has an average rating of Buy and an average price target of $75.16. It plans to sell some $15 billion in assets over time to offset the Anadarko deal.

Large investors have recently bought and sold shares of the stock.

-Chevron will acquire all outstanding Anadarko shares for US$65 each, paying a mixture of cash and stock.

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The deal announced Friday comes with US crude prices up 40% this year and vaults Chevron into a new league.

Oil prices have been on the rise as OPEC members cut production. 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 takeover puts Chevron neck-and-neck with the oil and gas production of Exxon Mobil Corp. and Royal Dutch Shell Plc, both of which have dominated Big Oil over the past decade.

Mr Nicol said these attributes are particularly useful in the Permian, which requires more drilling than other leading shale basins because it is larger and also because it is imbued with layers of hydrocarbon, piled one on top of each other. "I have tremendous respect for Mike and his leadership team and believe Chevron's strategy, scale and operational capabilities will further accelerate the value of Anadarko's assets".

The acquisition is however subject to Anadarko shareholder approval and regulatory approvals and other customary closing conditions. The oil and gas development company reported $0.38 earnings per share for the quarter, missing the Zacks' consensus estimate of $0.57 by ($0.19). The acquisition will give it access to potentially lucrative Permian Basin acreage, LNG operations in Mozambique, as well as attractive deepwater areas in the Gulf of Mexico (GoM).

The total enterprise value of the transaction is US$50 billion, including the assumption of net debt and book value of non-controlling interest, Chevron said today.

"This deal seems ideal".

The energy sector rallied after Chevron announced a deal to buy Anadarko, with Anadarko shares surging 31.9% late Friday.

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