Much of Chevron's Permian acreage was inherited from railroad land grants and thus carries no ... [+]
Chevron’s acquisition of Anadarko Petroleum will cement the oil giant as the leading operator in the most exciting oilfield in the world, giving it a 75-mile-wide corridor across the heart of the Permian. Prior to the $50 billion deal, Chevron already had 2.2 million net acres in the Permian basin of west Texas and southeast New Mexico. Anadarko brings about 250,000 acres, much of it adjacent to Chevron’s position.
Analyst Jarand Rystad of Rystad Energy calls Anadarko’s position the “sweetest spot” of the western portion of the Permian. He expects the combined company to emerge as the clear leader in production growth, boosting its Permian output from 500,000 barrels per day to nearly 1.6 million bpd in 2025.
The past ten years of the fracking revolution has seen oil flows from the Permian, long thought to be a worn-out field past its prime, surge from fewer than a million barrels per day to more than 4 million bpd now. After years of optimizing the drilling and fracking of Permian oil wells, investments in the region are now seen as relatively low risk—breaking even at an oil price of around $45/bbl. Anadarko also brings access to copious pipeline assets that can support fast production growth.
The deal is the biggest in the oil industry since Royal Dutch Shell bought BG for $53 billion in 2015. In addition to the Permian assets, Chevron also adds 400,000 acres in Colorado, deepwater fields in the Gulf of Mexico and a liquefied natural gas mega-project in Mozambique set to begin construction.
In the heart of the Permian's Delaware basin, Anadarko's acreage (yellow) sits amid Chevron's ... [+]
Chevron will pay $65 per Anadarko share (39% premium), financing the deal with $8 billion in cash on hand plus the issuance of 200 million shares. Adding Chevron’s 3 million bpd of oil and gas production to Anadarko’s 600,000, the combined company will trail only ExxonMobil among publicly traded oil giants. (Exxon made its own Permian deal two years ago.) Combined 2018 pro forma free cash flow was $36.5 billion. Analyst Roy Martin of WoodMackenzie says “Chevron now joins the ranks of the ultramajors — and the big three becomes the big four.” (As in Exxon, Chevron, Shell, BP.)
The deal is a big move for Chevron CEO Mike Wirth, and a keen exit for Anadarko CEO Al Walker, who owns about $20 million worth of shares at the deal price. Integration of the companies will be headed by Chevron EVP Joe Geagea. According to analysts, the price discounts to roughly $60 oil (Brent crude is at $71 today). Expect more consolidation of American oil companies, notes Credit Suisse analyst Bill Featherstone. He sees exploration and production companies currently trading at a 30% discount to net asset value and would not be surprised to see deals to gobble up the likes of Pioneer Natural Resources, Parsley Energy, Callon Petroleum, Centennial Resource Development and Noble Energy. A likely buyer is Occidental Petroleum, which reportedly had been rejected on a $70/share bid for Anadarko.
Chevron said today it anticipates $20 billion of divestments by 2022 and a boost in share buybacks to $5 billion per year. Chevron shares were down 5% at midday at $119 while Anadarko stock is up 33% at $62.
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