Oil giant Chevron will invest around $4 billion next year to ramp up its crude production in the Permian Basin area of the United States. Conway Gittens reports.
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Chevron on Friday announced plans to acquire oil and gas exploration and production company Anadarko Petroleum in a cash and stock deal valued at $33 billion. The transaction will give the second biggest U.S. energy company a boost in shale oil production as well as natural gas.
Shares of Anadarko rose nearly 30% in the premarket trading to $60.95 a share following the news. Chevron shares were down 4.2% from Thursday’s close of $125.99 a share.
The deal values Anadarko at $65 per share, a 37% premium to its Thursday close. Based on Chevron’s closing price of $46.80 on April 11, Anadarko shareholders will receive 0.3869 shares of Chevron and $16.25 in cash for each Anadarko share. Chevron will assume $15 billion of Anadarko’s debt.
“This takes a great company and makes it even better,” Chevron’s Chairman and CEO Michael Wirth told CNBC’s “Squawk Box ” immediately after the news broke. “As our company has strengthened its financial situation over recent years, we’re always looking to make our portfolio even stronger.”
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Wirth sees $65 per share as a “fair price” for Anadarko. Wirth, who assumed his role in February 2018, expects the deal will allow Chevron to “win in any environment,” playing to the company’s strengths in shale, deep water and natural gas. He said the company expects the deal to create over $1 billion dollars in synergies.
Chevron will have greatly expanded access to assets as a result of the combination. The deal comes as oil majors like Exxon Mobil look to carve out a dominant position in the Permian basin, the largest U.S. shale field and the driver of a boom in American oil production.
“They take their Permian position up a further level. They get West and East African reserves. They roll their Australian LNG development capability into Mozambique, “Mizuho Securities analyst Paul Sankey said in a note to investors. “And they take down Anadarko’s notoriously lavish Houston HQ.”
Chevron’s Permian production of oil, natural gas and associated liquids hit 16.2 billion barrels of oil equivalent (BOE) in 2018. Anadarko produces about 4 billion BOE from the Permian region, which underlies western Texas and eastern New Mexico. The companies say the tie-up creates a 75-mile wide corridor across the Delaware basin portion of the Permian. Stringing together continuous acreage allows companies to more efficiently carry out the advanced drilling methods needed to produce shale oil and gas. That is at the heart of Chevron’s Permian strategy. The company is bringing industrial scale to shale drilling, once the domain of small, independent wildcatters.
The deal, which is subject to shareholder and regulatory approval, is expected to close in the second half of 2019. If approved, Chevron said it plans to boost its annual share buyback program to $5 billion from $4 billion.
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Chevron said it plans to divest $15 billion to $20 billion of assets between 2020 and 2022.
“This transaction will unlock significant value for shareholders, generating anticipated annual run-rate synergies of approximately $2 billion, and will be accretive to free cash flow and earnings one year after close,” Wirth said earlier in the company’s release.
Credit Suisse Securities is Chevron’s financial adviser, while Paul, Weiss, Rifkind, Wharton & Garrison is its legal adviser. Evercore and Goldman Sachs are financial advisers to Anadarko, while Wachtell, Lipton, Rosen & Katz and Vinson & Elkins LLP are its legal advisers.
Anadarko Petroleum stock has risen 6.8% this year, compared to a 17.6% increase in the S&P 500 Energy index over the same time.
CNBC’s Michael Sheetz and Tom DiChristopher contributed to this report.
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