Chevron to buy Anadarko Petroleum for $33-billion in cash and stock

Irving Hamilton
April 13, 2019

Chevron will pay $65 per share for Anadarko, including 0.3869 of its shares and $16.25 in cash, for a total of $33 billion.

In 2018, Chevron had $42.4 billion in revenues and pumped 3.1 million barrels oil-equivalent per day, above the level of most members of the Organization of the Petroleum Exporting Countries. It expands Chevron's reach in two areas where US energy output is breaking records: shale from the Permian Basin of west Texas and New Mexico, and liquefied natural gas (LNG).

Giant oil companies such as Chevon, Exxon Mobil, BP and Shell have been searching for new sources of hydrocarbons including natural gas, which introduce less carbon dioxide into the atmosphere. If approved, Chevron said, it plans to boost its annual share buyback program to $5 billion from $4 billion.

Anadarko shares surged 32.1 percent in pre-market trading to $61.80, while Chevron fell 3.1 percent to $122.10. Anadarko produces about 4 billion BOE from the Permian region, which underlies western Texas and eastern New Mexico.

The last five years has seen the USA double its domestic oil production and become a rival to Saudi Arabia and Russian Federation as the world's premier supplier.

The company will sell US$15 billion to US$20 billion of assets between 2020 and 2022 in order to reduce debt and return additional cash to shareholders.

The deal has sparked speculation that other shale producers are in play.

With the purchase of Anadarko, "we will now see Chevron emerging as the clear leader among all Permian players, both in terms of production growth and as a cost leader", predicts Per Magnus Nysveen, the head of research at Rystad Energy.

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The deal may put pressure on Shell to seek assets in the Permian, where the Anglo-Dutch company has said it wants to grow.

-Chevron said the combined entity would have had daily output of 3.596 million barrels equivalent of oil past year, compared with Shell's 3.666 million.

Michael Wirth, Chevron chief executive, said the deal will cement the major's strong position within the Permian shale basin while building on its deepwater Gulf of Mexico capabilities and growing its burgeoning liquified natural gas (LNG) business.

A Chevron customer looks on as he pumps gas into his auto in 2009 in Greenbrae, Calif. Chevron is acquiring Anadarko Petroleum for $33 billion in cash and stock.

-Chevron expects the deal to add to free cash flow and earnings per share one year after closing, at US$60-a-barrel Brent. Widening the measure to include chemicals and state-owned companies, both would be eclipsed by Saudi Aramco's US$69 billion acquisition of a majority stake in local petrochemical company Sabic this year. However, it wasn't the only bidder, as Occidental Petroleum reportedly offered more than $70 a share - so it's possible there could still be a bidding war for Anadarko.

The deal is expected to close in the second half of the year.

Credit Suisse Group AG was financial adviser to Chevron while Paul, Weiss, Rifkind, Wharton & Garrison LLP was legal adviser. It will also assume about US$15b in debt.

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