Advertisements
Open post

Chronicling the Battle Between Oxy and Chevron for Anadarko

Over the past two weeks I’ve published four pieces at Forbes.com detailing the heavyweight battle between Occidental Petroleum and Chevron for the prized assets of Anadarko Petroleum, one of the oil and gas industry’s biggest and most successful independent producers. I’ve reproduced them all in a single narrative here, but if you’d rather read them in smaller chunks in their original format, here are the links to each story:

The Competition For Permian Dominance Heats Up With Chevron’s Buyout Of Anadarko

7 More Things To Know About The Chevron Buyout Of Anadarko

Occidental’s Bombshell Ups The Ante For Anadarko

7 More Things You Need To Know About Oxy’s New Bid For Anadarko

 

Here’s the full, long story:

April 12, 2019 – Chevron and Anadarko announce the initial deal:

Had the deal taken place in 2014, when shares of Anadarko PetroleumAPC +0% traded as high as $109, it would have amounted to the largest buyout of an independent producer by a major integrated company in the 21st century, surpassing both ConocoPhillips’ COP +0% 2005 purchase of Burlington Resources and ExxonMobil’s XOM +0% 2009 buyout of XTO. As it is, Anadarko’s Thursday closing price of $46.80 means that Chevron  is able to obtain one of the largest U.S. independents in a cash and stock deal for the seemingly bargain price of $33 billion, slightly behind the $35.6 billion price tag of the Burlington Resources acquisition and well below the $41 billion that ExxonMobil paid for XTO.

Regardless, this is a very, very big deal, one that enables Chevron CVX +0%, already the nation’s second-largest energy company, to expand its operations in a number of key domestic areas, including the Permian Basin, the Rocky Mountain West and the Gulf of Mexico. Internationally, Anadarko will enhance Chevron’s operational base with key assets in places like Algeria, Ghana and Mozambique.

“This transaction builds strength on strength for Chevron,” said Chevron’s Chairman and CEO Michael Wirth. “The combination of Anadarko’s premier, high-quality assets with our advantaged portfolio strengthens our leading position in the Permian, builds on our deepwater Gulf of Mexico capabilities and will grow our LNG business. It creates attractive growth opportunities in areas that play to Chevron’s operational strengths and underscores our commitment to short-cycle, higher-return investments.”

“The strategic combination of Chevron and Anadarko will form a stronger and better company with world-class assets, people and opportunities,” said Anadarko Chairman and CEO Al Walker. “I have tremendous respect for Mike and his leadership team and believe Chevron’s strategy, scale and operational capabilities will further accelerate the value of Anadarko’s assets.”

In its press release, Chevron said that the acquisition will consist of 75% stock and 25% cash , valued at an Anadarko share price of $65, which represents a 37% premium over its Thursday closing price. Chevron will also assume $15 billion of Anadarko’s debt as a part of the transaction. Chevron said it plans to divest “$15 to $20 billion of assets between 2020 and 2022. The proceeds will be used to further reduce debt and return additional cash to shareholders.”

As a practical matter, this deal accelerates the efforts by the major, integrated oil companies to form dominant positions in the prolific and booming Permian Basin of West Texas and Southeastern New Mexico. As I noted in a piece last month, Chevron has been engaged in a competition with ExxonMobil, and to a lesser extent, BP and Shell to effectively convert its Permian operations into a true manufacturing operation by leveraging its company assets along every step of the oil and gas value chain.

A big part of a company’s ability to do that is to acquire a large base of contiguous leasehold broadly across the sweet spots of the basin. As CNBC notes this morning, “The companies say the deal creates a 75 mile 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 sort of synergy also exists between the two companies’ assets in the Gulf of Mexico, where Chevron says it sees “opportunities for tie-backs to Anadarko assets in the Gulf, which involves connecting offshore fields to existing infrastructure.”

Finally, the deal also allows  Chevron to acquire another major LNG export asset in Mozambique, adding to the company’s already-large portfolio in that booming sector of the energy business.

Anadarko had long been rumored to be a potential takeover target for Chevron or ExxonMobil, and the emerging details of this transaction clearly demonstrate why Chevron became the ultimate suitor. One likely result of today’s deal will be to put even more pressure on ExxonMobil and the other majors to execute further acquisitions of their own as the competition to be the dominant player in the Permian Basin continues to heat up.

The big question is, which independent producer will become the next target?

 

April 13, 2019 – More details come to light

Chevron CVX +0% sent shock waves across the oil and gas media on Friday, with the announcement of its $33.6 billion buyout of Anadarko PetroleumAPC +0%, a deal worth almost $50 billion including the assumption of Anadarko debt. Friday’s reporting from a variety of sources was filled with the basics of the deal, and over the weekend, several industry analysts have worked to put more meat on the bone.

Here are seven more things you need to know about this very big deal:

  • The largest oil and gas merger since 2015. – Analysts at DrillingInfo note that the deal constitutes the largest oil and gas-related transaction since Shell’s $82 billion buyout of LNG company BG in 2015. In an email released late Friday, DrillingInfo notes that “The deal is the sixth largest deal in oil and gas history and the largest deal since Shell bought BG for $82 billion in 2015 to become a global LNG powerhouse.”
  • The largest major/independent buyout in the 21st century. – DrillingInfo’s analysis also points out the fact that, when Chevron’s assumption of more than $15 billion in Anadarko’s debt is included, this transaction surpasses both the ConocoPhillips COP +0%/Burlington Resources 2005 deal and the ExxonMobil XOM +0%/XTO acquisition of 2009.
  • Occidental Petroleum OXY +0% actually offered a higher share price for Anadarko. – CNBC is reporting that Occidental bid more than $70 per share in the takeover battle, an offer that actually included more cash content than Chevron’s. Quoting unidentified sources, CNBC reports that “structural issues with the Occidental bid” led Anadarko’s leadership to go with Chevron’s offer instead.
  • A return to super major status for Chevron. – Wood Mackenzie notes that after the deal closes, Chevron will become firmly ensconced among the ranks of what it calls “super majors” once again.  Chevron stands to move up from the 4th-largest corporate major integrated company to 2nd-largest, behind only ExxonMobil, once the deal is finalized.
  • Does the Chevron/Anadarko deal presage a return to the buyout fever of 2016/2017? – DrillingInfo (DI) notes that this $50 billion transaction comes on the heels of a first quarter of 2019 that saw almost no activity in the M&A space . DI recorded just $1.6 billion in M&A activity in the oil and gas sector during the first three months of the year. As I noted on Friday, there is no question that Chevron’s increasing its overall position in the Permian Basin to 1.4 million net acres (behind only the 1.8 million owned by ExxonMobil) will put pressure on the other major players, like ShellBP and Occidental, to pursue deals of their own.
  • The public policy upheaval in Colorado did not scare Chevron off. – While most of the focus on this transaction has been on Anadarko’s Permian, Gulf of Mexico and international assets, it’s important to note that Anadarko also ranks as the largest producer in Colorado’s DJ Basin. Thus, the recent passage of Senate Bill 19-181, which is clearly designed to hamstring the industry in that state, did not cause Chevron to walk away. That’s a very positive endorsement of the richness of the resource in the Basin’s Niobrara Shale formation.
  • This is a big midstream deal, too. – Anadarko Petroleum will always be remembered as an upstream company with a long and proud history of success in that realm. In its Friday email, DI notes that the company also owns and operates very significant midstream assets: “ Chevron also acquires world class midstream assets that includes 12,509 miles of pipeline that tie to key US supply basins”including the Permian and DJ Basins.

All in all, it’s a deal that is well worth talking about, and that’s what pretty much everyone in the U.S. oil and gas business has been doing since Friday.

 

April 24, 2019: Oxy makes its bombshell new offer in a very public manner

In a surprising move, Occidential Petroleum (OXY) announced Wednesday morning that it was tendering an offer to the board of directors at Anadarko Petroleum APC +0% that OXY describes as being “superior” to the already-accepted offer by Chevron , which was announced two weeks agoNews reports at that time indicated that OXY had in fact offered a higher price for Anadarko – $70 per share – but Anadarko had decided to accept the Chevron offer due to “structural issues with the Occidental bid.”

Unwilling to accept that fate, OXY has now come back with an offer of $76 per share, in which shareholders of Anadarko stock “would receive $38.00 in cash and 0.6094 shares of Occidental common stock for each share of Anadarko common stock.” OXY pegs the total value of this new offer at $57 billion.

This compares to the already-accepted $50 billion Chevron offer that values Anadarko stock at $65 per share, from which shareholders would receive $16.25 in cash and .3869 shares of Chevron for every share of Anadarko stock they own. When markets opened Wednesday morning, OXY was trading at $60.31 and Chevron at $120.45.

Any way you look at it, shareholders would derive a higher initial return from the OXY offer than they would from the Chevron deal. When the original deal was announced two weeks ago, Anadarko’s board was not specific about nature of the “structural issues” with OXY’s original offer that had caused them to reject it. Assuming OXY has dealt with those issues in the scope of this new, even higher offer, it seems to place the Anadarko board in a real quandary.

“We have been focused on Anadarko for several years because we have long believed that we are ideally positioned to generate compelling value from a combination with them. We look forward to engaging immediately with Anadarko’s Board and stakeholders to deliver this superior transaction,” OXY CEO Vicki Hollub said in the company’s April 24 press statement.

OXY has long been a leading oil producer in the Permian Basin, and says the acquisition of Anadarko would increase its production in that basin to 533,000 barrels of oil equivalent (BOE) per day. The company’s press statement goes on to note that an acquisition of Anadarko would raise OXY’s total enterprise value to over $100 billion and result in a company with total global production of 1.4 million BOE per day.

Shares of Anadarko rose about 11% in pre-market trading, as investors anticipate OXY’s new offer will re-open the bidding for the company. Chevron’s management had not responded as of this writing, but there can be little doubt that OXY’s gambit will result in responses from both Chevron and Anadarko before the day is out.

As is always the case, the only certain aspect of the oil and gas industry is that, in the end, nothing is really certain.

Stay tuned.

 

April 25, 2019: More details of Oxy’s higher offer come to light

A friend asked me Wednesday afternoon if I had ever seen anything similar to the public battle between Occidental Petroleum and Chevron to acquireAnadarko Petroleum APC +0%. I’ve been in and around the oil and gas industry for 40 years now, and so was there throughout the rapid consolidation days of the late 1990s.

There were certainly battles then among the big companies to acquire takeover targets like Amoco, Texaco and Mobil Oil, which ultimately were merged with BP , Chevron and Exxon, respectively. But the difference between those competitive days and what we are seeing this week is the very public nature of Oxy’s move, with a letter to the Anadarko Board of Directors accompanied by a press release.

The same is true of the big takeovers that have happened during this century. I was at Burlington Resources (BR) when it was acquired by ConocoPhillipsin 2006. While rumors had flown for years that BR was a takeover target being eyed by one big company or another, nothing was ever made public until ConocoPhillips’ then-CEO Jim Mulva and BR CEO Bobby Shackouls announced the deal in early December, 2005. A similar quiet, behind-the-scenes process led to ExxonMobil’s acquisition of XTO a few years later.

But here we have Oxy, apparently frustrated that its first offer, which it considered to be more attractive than the bid by Chevron that was ultimately accepted, was not given proper consideration by the Anadarko Board, coming back almost two weeks later with an even higher offer, and doing it in a way that will place great pressure on those directors to reconsider. That’s a very, very different thing than the industry has seen in big takeover battles over the past 20 years or so.

So, that’s the first thing you need to know about this new bid for Anadarko. Based on events and analysis of the last 24 hours, here are six more things to know about this emerging competition:

Oxy considers this as the continuation of a “friendly engagement.” – In an interview on CNBC’s “Squawkbox” Wednesday, Oxy CEO Vicki Hollub was careful not to call this a “fight” , telling host David Faber that “We’ve been working on this Anadarko deal and studying it for two years. It was in July of 2017 that we made our first approach to talk to the CEO of Anadarko. We have been in a friendly engagement since then, and even today, this is still a friendly engagement.”

Most of the value in the deal is in Anadarko’s onshore shale assets. – When asked by Faber about investor concerns that Anadarko’s Gulf of Mexico operations and LNG export assets in Mozambique are better fits for Chevron than for Oxy, Hollub noted that “75% of the value in this deal is in the shale.” Much of that shale, of course, is in the Delaware Basin of West Texas, where Oxy has long been one of the major players. But it’s fair to note that Anadarko is also currently the largest producer in Colorado’s DJ Basin, a region where Oxy has not been an active player.

Oxy remains focused on Anadarko to the exclusion of other potential takeover targets in the Permian. – Hollub told Faber that her company maintains a laser focus on Anadarko for good reasons. “[The opportunity for Oxy is] tremendous, because there’s more than 10,000 wells that can be drilled. In the Delaware Basin, our wells perform about 74% better than Anadarko’s, and we have lower cost of development on both the drilling and completions execution. So when you take that and apply it to 10,000 wells, that’s a huge upside.”

Industry analyst company DrillingInfo agrees that the Permian/Delaware Basin is the big driver here. – In an analysis released Wednesday afternoon, M&A Analyst Andrew Dittmar points out that “The Permian is clearly the primary driver of this competition between Chevron and Occidental for Anadarko.” He also notes that this public competition is going to raise the cost of future acquisitions in the region: “For the increased Oxy bid of $57 billion, we are raising the value allocated to Permian acreage up to nearly $20 billion or ~$80,000 per acre,” Dittmar added.

Synergies between Oxy and Anadarko are also strong in the Middle East. – Dittmar notes that, beyond the Permian/Delaware, the synergy battle here is not all in Chevron’s favor: “Beyond the Permian, Oxy gets just under 40% of its output from the Middle East fitting Anadarko’s operations there, while Anadarko’s Gulf of Mexico and LNG assets are perhaps less of an obvious fit than in the Chevron portfolio.”

The 4th largest deal in the industry’s history. – DrillingInfo previously pegged the Chevron/Anadarko $50 billion bid as being the 5th largest deal in the oil and gas industry’s history, if completed. Oxy’s higher bid of $57 billion, including assumed debt, would make it even larger than BP’s $56 billion takeover of Amoco in 1998 .

The bottom line here is that Chevron and Oxy are competing for Anadarko because of the extremely attractive portfolio of assets that company has accumulated over the years. Hollub doesn’t want to characterize it as a “fight,” but you can’t help but believe that’s exactly what she has on her hands now.

=========================================

That is all, for now. But you can bet this story is far from over.

Follow me on Twitter at @GDBlackmon

 

 

Advertisements
Open post

The Facts on Chevron’s Blockbuster Deal to Acquire Anadarko

Today’s Energy Update
(Because Energy Fuels Our Lives)

Over the past few days I have posted up two separate pieces at Forbes.com analyzing the Chevron acquisition of Anadarko Petroleum. This largest takeover of an independent producer by one of the majors in this 21st century ended a half-year drought in the M&A space in America’s oil and gas industry, and moves Chevron up the ranks of the super majors, now ranking behind only ExxonMobil as the second-biggest privately-held major oil company.  Links to both pieces are below.  I hope you enjoy them.

The Competition For Permian Dominance Heats Up With Chevron’s Buyout Of Anadarko

7 More Things You Need To Know About Chevron’s Takeover Anadarko

 

Follow me on Twitter at @GDBlackmon

Today’s news moves at a faster pace than ever. Whatfinger.com is my go-to source for keeping up with all the latest events in real time.

Open post

ExxonMobil, Chevron: Turning The Permian Into A Manufacturing Operation

Today’s Energy Update
(Because Energy Fuels Our Lives)

The exploration for oil and natural gas has always been among the most risky propositions in the business world. The major risk today, in the new age of shale, revolves around raising capital and satisfying investors, but throughout the 19th and 20th centuries, the bigger risk centered on finding the pockets of oil and gas contained within conventional sand and limestone formations.

This was often a very tricky proposition, and the drilling of dry holes outnumbered the successful wells in many major play areas. The tales are legion of the independent producers who went flat dead broke before ever managing to drill a producing well. “Dad” Joiner, the promoter and ultimate driller of the Daisy Bradford No. 3 – the first successful well completed in the mammoth East Texas Field on October 3, 1930 – famously went broke half a dozen times and required an influx of capital from H.L. Hunt before finally bringing in his gushing discovery well.

That dynamic all began to change in the late 1980s with the discovery and development of unconventional formations like the Fruitland Coal in the San Juan Basin of New Mexico. Operators like Burlington Resources, Amoco and Devon Energy (DVN) soon realized that, once the geographic extents of the formation had been fully delineated, the risk of drilling dry holes soon diminished to near-zero. Once that determination had been made, you drilled a vertical well, conducted a smallish hydraulic frac job and de-watered the surrounding rock to cause the methane gas to be released from the coal.

At that point, the main considerations became how to re-use, dispose of or sell the largely-potable water that came up out of the wells, and building out the necessary transportation and processing infrastructure needed to get it to market. Once those concerns had been addressed, these companies and many others found themselves in what was essentially a true manufacturing environment

A true manufacturing environment is one that is highly-predictable, consistently repeatable, requires known raw materials (i.e., sand, pumps and frac water), deploys specific infrastructure, and involves the disposition of waste materials. The Fruitland Coal fit every aspect of that definition: Many other unconventional plays soon followed.

Shale plays, once fully delineated, all end up incorporating the same features of true manufacturing operations. Thus, when both ExxonMobil (XOM) and Chevron (CHV) issued this week’s announcements that their companies would deploy a high percentage of their respective capital budgets in the coming years in efforts to dramatically increase their production from their Permian Basin operations, it did not represent a new concept for the U.S. oil industry. It’s just that these two major, fully-integrated companies have the ability to conduct such operations on a far grander scale.

For those who may have missed those announcements, Chevron said it plans to produce 600,000 barrels of oil equivalent (boe) from its Permian operations by 2020, ramping that up to 900,000 boe by 2023. ExxonMobil anticipates being able to increase production from its 1.6 Permian position from roughly 200,000 boe today to 1 million boe by 2024. Both numbers are truly astonishing.

Read the Rest Here

 

Follow me on Twitter at @GDBlackmon

Today’s news moves at a faster pace than ever. Whatfinger.com is my go-to source for keeping up with all the latest events in real time.

Open post

While Politics Dominates The News, Big Oil Invests In Global Energy Reality

One of the big concerns during the depths of the oil price bust of 2014-2016 was the fact that so many big, integrated and state-run oil companies were delaying or taking a full pass on investing in major and highly-costly international projects. During the financial retrenchment of this dark period, exploration for major new resources consistently took a back seat to finding ways to pay the bills and service the company’s debt.

This lack of investment in new exploration and infrastructure projects led to concerns among many energy analysts that we could be facing a shortage of global supply early in the next decade as decline rates caused existing reserves to play out without the needed new production coming on line to replace them.  The surge in new supply from U.S. shale plays has served to alleviate those concerns for the near-term, and a new report issued by the Norwegian research firm Rystad Energy documents a similar surge in new international investments that should help avoid supply shortages further down the road.

“We expect global FID volumes in 2019 to triple over last year, and 2019’s megaproject awards could lead to billions of subcontracting dollars in coming years,” said Rystad Energy upstream research analyst Readul Islam, “The only supply segment likely to shrink this year is the oil sands, whereas deepwater, offshore shelf and other conventional onshore developments are all poised to show substantial growth. From a geographical perspective, all regions are headed for robust growth except Europe and North America, still bearing in mind that shale plays are not included in these numbers.”

That last point – that shale plays are not included in this report – is key. As I pointed out last week, the Permian Basin has become a focal point for major development not just for big independents like Pioneer Natural Resources, Noble Energy, Apache Corporation and others, but also for major, integrated companies like ExxonMobil, BP, Shell and Chevron. These U.S. shale plays are likely to sustain significant production growth for years to come, giving the big investments documented by Rystad in its report the running room they need to move from final investment decisions to first production, which can easily consume five-to-seven years.

So, if you’ve been wondering why all those stories about concerns of a looming supply crunch on the horizon have disappeared from your daily news clips, this is the reason.

Read the Rest Here

Open post

Is an Oil Price Train Wreck Hiding Around the Bend?

Today’s Energy Update
(Because Energy Fuels Our Lives)

The energy media has recently featured headlines that seem at odds with one another and that, when taken together, portend the possibility of a coming train wreck somewhere down the road where crude oil supply and prices are concerned. Let’s look at some of the more recent headlines as examples:

“The U.S. Shale Boom is About to Get a Major Upgrade” – Investors Business Daily, Feb. 19

“Wall Street Calls for Better Returns; Shale Gets Thrifty” – Gulf Times, Feb. 17

“OPEC Cuts Send Crude Exports to Lowest Since 2015” – Financial Times, Feb. 19

“U.S. shale oil output to hit record 8.4 million bpd in March: EIA” – Reuters, Feb. 19

That Investor’s Business Daily story begins by stating “The U.S. shale oil boom is about to get a whole lot bigger. The reason: Giant oil companies like Exxon Mobil (XOM) are leveraging their massive scale to unleash more production from the top-producing shale oil formation.”

The EIA projects that the domestic industry will push U.S. oil production past the 12 million barrels of oil per day (bopd) level for the first time in the nation’s history in March, with 70% of that coming from shale plays. Fully 1/3rd of all oil produced in the U.S. in March will come from the Permian Basin alone.

Follow me on Twitter at @GDBlackmon

Today’s news moves at a faster pace than ever. Whatfinger.com is my go-to source for keeping up with all the latest events in real time.

Scroll to top
%d bloggers like this: