Chevron vaults into new league on $33B Anadarko acquisition

Chevron vaults into new league on $33B Anadarko acquisition

Anadarko is perhaps best known for being a minority partner on BP's ill-fated Macondo project in the Gulf of Mexico, the site of the worst offshore oil spill in U.S. history in 2010 following a well explosion that killed 11 people.

There has been some pressure in energy markets as OPEC tries to push prices higher through production cuts.

Chevron said the combined entity in 2018 would have had output of 3.596 million barrels equivalent of oil, compared with Shell's 3.666 million.

"This transaction builds strength on strength for Chevron", said Chairman and CEO Michael Wirth.

Chevron's pledge to restrain expenditures has made it a favorite among energy stocks, with its shares up 13.8 percent this year.

Chevron said it is an opportunity to "high-grade" its portfolio and plans to divest between £11.4bn and £15.2bn of assets between 2020 and 2022, with proceeds used to reduce debt and return cash to shareholders.

Shares of Chevron Corporation dropped about 5 percent, shortly after Friday's opening, while Anadarko stock surged more than 32 percent.

Chevron's deal values Anadarko at $65 per share, a 37% premium to its Thursday shut.

Anadarko submitted the second most applications for permits to begin drilling in Wyoming a year ago, but it trailed behind in actual production.

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Further fueling the fervor in the energy sector, the cash-and-stock deal set off speculation of further potential oil patch mergers after prices plunged in 2014.

This is the biggest takeover in the oil and gas industry since Shell's 47 billion pound (US$61 billion) purchase of BG Group in 2015, according to data compiled by Bloomberg.

California-based Chevron is one of the largest oil companies in the world, based on its $228 billion market capitalization, and the second-biggest in the United States after Exxon Mobil. The company is bringing industrial scale to shale drilling, once the domain of small, independent wildcatters. It also has operations in the Gulf of Mexico and gas facilities in Africa.

Chevron also owns mineral rights under some of the Anadarko Permian properties, saving royalties others would have to pay, said Drilling info analyst Andrew Dittmar. Inc. raised its holdings in Anadarko Petroleum Co.

Occidental may turn its attention to other Permian major shale players now. Occidental was the rival bidder that lost out to Chevron in the race to buy Anadarko, sources said on Friday. FactSet expected first-quarter earnings to have fallen 4.2% in the first quarter. "This is a diversified company with assets in the deepwater Gulf of Mexico, Mozambique, Ghana, Algeria".

"This deal seems flawless". Mitsubishi UFJ Financial Group reduced their price target on shares of Anadarko Petroleum to $70.00 in a research report on Thursday, February 7th.

Last month, Chevron had already announced plans to significantly grow its production in the Permian, where the US supermajor has added nearly 7 billion barrels of resources and doubled its portfolio value over the past two years.

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.

Chevron's $33 billion bid for Anadarko Petroleum may presage a new Permian Basin buying spree, with Pioneer Natural Resources and Concho Resources among the next prime targets.

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