WSJ -- Chevron to Buy Anadarko Petroleum in $33 Billion Cash-and-Stock Deal .................
April 12, 2019
Chevron to Buy Anadarko Petroleum in $33 Billion Cash-and-Stock Deal
Anadarko fetches a 39% premium to its closing price on Thursday
By Bradley Olson
Chevron Corp. has agreed to buy Anadarko Petroleum Corp. in a $33 billion deal that expands its shale-drilling ambitions and places it just behind Exxon Mobil Corp. as one of the world’s largest publicly traded producers of oil and gas.
The combined company is set to become the leading operator in the heart of America’s fracking boom in West Texas and New Mexico at a time when the U.S. pumps more crude than Saudi Arabia and Russia. The value of Chevron and Anadarko’s U.S. drilling prospects exceeds $100 billion, more than double the nearest rivals, according to analytics firm Rystad Energy.
The cash-and-stock deal could set off a frenzy for oil patch mergers -- anticipated after crude prices plunged in 2014 but deferred as senior executives at big oil companies viewed smaller producers as overvalued.
More recently, small and midsize oil-and-gas companies such as Anadarko have performed poorly after facing investor pressure to slow growth and deliver more consistent profits and cash flow. That change in strategy has challenged many companies, and their share prices have fallen even as oil prices have risen.
Although Chevron shares fell 4.9% on news of the deal, energy-focused investors welcomed the proposed merger as a sign of long-hoped consolidation in shale oil.
Many shale operators have struggled as their well forecasts have fallen short of the optimistic projections they made to investors, and new wells in some regions are producing less than old ones. The companies are seeing a greater-than-expected decline rate from their current production, meaning it is costing them more to grow and achieve financial sustainability.
Bigger companies such as Chevron and Exxon have exploited their shale-oil resources more carefully and now have an advantage as the industry scales up in the Permian Basin of Texas and New Mexico, a region that produces almost as much crude as Iraq.
Chevron will buy all of Anadarko’s shares outstanding for $65 a piece, a 39% premium to their closing price on Thursday. The stock rose 32% on Friday.
Anadarko shareholders will receive 0.3869 shares of Chevron and $16.25 for each Anadarko share. Chevron, which has about has 1.9 billion shares outstanding, plans to issue about 200 million shares of stock and pay roughly $8 billion in cash for the deal.
Chevron Chief Executive Mike Wirth has made no secret in recent months that he was interested in potential deals, at one point invoking the Golden State Warriors’s signing of top NBA players such as Kevin Durant, even after the team had already won championships.
“What was great just gets better,” Mr. Wirth said in an interview Friday. “We think this is a terrific fit.”
Mr. Wirth, who will continue to run the combined company from Chevron’s San Ramon, Calif., headquarters, sought an opportunity to scale up in some energy-rich places and create momentum to sell off older, less-profitable assets. The Anadarko deal expands Chevron’s already sizable footprint in the Permian Basin, America’s hottest shale-drilling region.
Together, the two companies will produce about 3.6 million barrels a day, just 5% less than Exxon and similar to the output of other major oil companies such as Royal Dutch Shell PLC and BP PLC.
Mr. Wirth played down the gains in size, however, saying that being the biggest producer wasn’t as important as generating returns for shareholders.
Anadarko, based in The Woodlands, Texas, had for years been considered a potential target for giant oil companies such as Chevron, and analysts said the company’s drilling projects in the U.S. and abroad could be attractive enough to bring out additional offers.
“This will be a very powerful combination for many years to come,” Anadarko Chief Executive Al Walker said on a call with investors. It isn’t clear what role Mr. Walker will play at Chevron once the deal closes, which is expected to happen in the second half of this year. The deal is subject to Anadarko shareholder approval.
Occidental Petroleum Corp. , a company that is smaller than Chevron but has one of the largest footprints in the Permian Basin, also approached Anadarko about a deal. Occidental’s offer represented a slightly higher premium than Chevron’s, according to people familiar with the matter.
Senior Anadarko officials preferred the offer from Chevron because of its stronger financial position, the people said. Representatives for Occidental and Anadarko didn’t immediately return requests for comment.
Mr. Wirth, in the interview, declined to address any information about potential rival offers, but expressed confidence that the deal would go forward as announced.
“We intend to close at this price,” he said.
In addition to enhancing Chevron’s Permian position, the deal would give the company assets in the Gulf of Mexico that rival those of Shell, the market leader in that region.
“These are desirable assets for the super majors, so I wouldn’t be surprised if there was a counter-bid,” said Anish Kapadia, an energy analyst at AKap Energy.
Chevron plans to shed $15 billion to $20 billion in assets after it closes the transaction and use proceeds to reduce debt and return cash to shareholders. It didn’t specify where it might pare assets.
The company said it would assume about $15 billion in debt from the deal and plans to bump up its share buyback program to $5 billion, from $4 billion. It anticipates the deal to be accretive to free-cash flow and earnings a year after the transaction closes. It also expects $2 billion in annual run-rate savings.
The deal highlights the extent to which big oil companies like Chevron and Exxon are betting on fracking for growth. Chevron had already announced plans to double its production in West Texas and New Mexico to 900,000 barrels a day by 2023, while Exxon plans to reach production of 1 million barrels a day.
Anadarko is among the largest operators in the Permian and has developed a network of pipelines and processing capacity in the region that Mr. Wirth said were particularly attractive. Together, Permian basin production of the two companies is about 500,000 barrels of oil and gas.
Beyond the U.S., Anadarko is in the midst of developing a giant natural gas export facility in Mozambique, an asset Mr. Wirth said highlighted Anadarko’s wide array of operations.
“This is not just a shale deal,” he said. “This is a diversified company with assets in the deepwater Gulf of Mexico, Mozambique, Ghana, Algeria. We like the Mozambique resource.”
-- Kimberly Chin and Rebecca Elliott contributed to this article.
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