Chevron announced Friday that it will purchase Anadarko Petroleum in a cash-and-stock deal worth $33 billion, a move that could help usher in a wave of consolidations as Big Oil seeks to exploit the growing U.S. shale industry.
“This is a megadeal that cements the trend of big oil companies taking over the U.S. shale industry, with more acquisitions to come,” said John Kilduff of Again Capital. “Big Oil has cracked the code, driving down costs in the shale oil region to remarkably low levels. ”
Chevron said it would pay the equivalent of $65 per share — a 37 percent premium over Thursday’s close — which includes 0.3869 shares of Chevron and $16.25 in cash for each Anadarko share. In late morning trading Friday, Anadarko was up 32 percent and Chevron had shed nearly 5.3 percent.
Soon after the deal was announced, CNBC, citing anonymous sources, reported that Occidental Petroleum had bid $70 per share for Anadarko and that Occidental is now considering its options. The Chevron bid contains a 3 percent breakup fee, which would come to about $1 billion.
The acquisition comes as the U.S. has reversed a decades-long decline in oil production, thanks to new technology that has allowed it to tap hitherto unreachable, so-called tight oil that had been locked deep beneath the surface in shale rock.
The last five years has seen the U.S. double its domestic oil production and become a rival to Saudi Arabia and Russia as the world’s premier supplier. The U.S. now exports oil and gas, which was unthinkable a decade ago.
As U.S. oil companies have become more efficient at producing shale oil, they have changed the international equation by making the price of U.S. production more competitive against the cheap oil produced by the Organization of the Petroleum Exporting Countries.
“OPEC should be quaking in their collective boots,” Kilduff said.
The global oil industry has been reordered as production by onetime heavyweights Venezuela and Libya has dwindled. At the same time, Saudi Arabia and Russia have reduced pumping in hopes of boosting oil prices — leaving a gap that U.S. shale producers have filled.
Giant oil companies such as Chevron, ExxonMobil, BP and Shell have been searching for new sources of energy, including natural gas, which introduce less carbon dioxide into the atmosphere. The rise in carbon dioxide is seen by many scientists as the main driver of climate change.
“As our company has strengthened its financial situation over recent years, we’re always looking to make our portfolio even stronger,” Chevron chief executive Michael Wirth told CNBC in a Friday morning interview in which he announced the deal.
Wirth said Chevron was particularly attracted to Anadarko’s high-quality oil assets, from its natural gas resources in Mozambique to its offshore production in the Gulf of Mexico and its Permian Basin shale.
The combination will create a 75-mile-wide corridor in the oil-rich Permian and add to Chevron’s already significant natural gas holdings, which extend from its giant Gorgon field off the northwest coast of Australia to Africa and the United States.
Analysts said there is more to follow.
”The big oil players such as Exxon and Chevron are making a push for an even bigger role in shale, so that should mean more consolidation,” said Stewart Glickman, an oil analyst with CFRA Research.
Anadarko is one of several exploration and production companies, known as “upstream businesses,” which find and pump the oil from the ground. But unlike the oil super-majors, the E&P companies generally do not refine the products into gasoline, chemicals and other byproducts. The refining end is known as the “downstream business.”
The E&P companies have led the way in shale oil production, but have earned the ire of shareholders and Wall Street because they have been drilling away without returning enough profit.
In the case of Anadarko, Glickman said, the company had a debt level nearly double the industry average and the life expectancy of its reserves, another key metric, were below the industry average.
”Anadarko has good assets, but it had issues that were going to take time to sort out,” Glickman said. “This is a good exit strategy for them.”
Saudi Arabia has introduced another wild card to the investing end of oil. Its Saudi Arabian Oil Company, known as Aramco, has been making noises about selling shares of stock on open exchanges. In what many think is an attempt to whet investor appetite, Aramco for the first time ever disclosed its financials and powerful oil reserve numbers as part of a $10 billion bond sale.
The bond sale has drawn a huge amount of interest, despite misgivings about the company and its ownership by the Saudi government. Saudi Arabia and its 33-year-old crown prince, Mohammed bin Salman, have drawn international condemnation since the Oct. 2 murder of Washington Post contributing columnist Jamal Khashoggi by Saudi agents inside the Saudi Consulate in Istanbul.
California-based Chevron is one of the largest oil companies in the world, based on its $228 billion market capitalization, and second only to ExxonMobil in the United States. Chevron earned nearly $15 billion in 2018 on $166 billion in sales. The company has 52,000 employees.
The boards of both companies have approved the deal, which is expected to close in the second half of this year.
Photo as published on The Washington Post: Giant oil companies like Chevon have been searching for new sources of energy that introduce less carbon dioxide into the atmosphere. (Paul Sakuma/AP)