Chevron doubles down with $33 bln Anadarko swoop

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Chevron Corp. will keep its headquarters in San Ramon, California.

According to CNBC, Occidental Petroleum bid more than $70 a share for Anadarko in cash and stock earlier but the company ultimately made a decision to go with Chevron.

Still, investors sent Chevron shares down 5.2% to $119.44 yesterday. He has quickly shaken up the company by announcing an aggressive expansion plan for the Permian.

Anadarko employs about 1,100 people in Colorado, but has a much larger presence in Texas. Widening the measure to include chemicals and state-owned companies, both would be eclipsed by Saudi Aramco's $69-billion acquisition of a majority stake in Saudi petrochemical company Sabic this year. Stringing together continuous acreage allows companies to more efficiently carry out the advanced drilling methods needed to produce shale oil and gas. The average premium in such transactions was 11 per cent previous year and 22 per cent in 2017, according to data compiled by Bloomberg.

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

That's still something of a bargain, investors said. Bank of New York Mellon Corp raised its position in Anadarko Petroleum by 1.7% in the third quarter.

Chevron will have greatly expanded access to assets as a result of the combination.

"This seems a big bet on shale and on oil prices remaining high", said CMC Markets analyst Michael Hewson.

Chevron is paying $33 billion to acquire Anadarko Petroleum in a massive deal that will bolster its natural gas and shale operations.

Chevron chief executive Mike Wirth said the deal "builds strength on strength for Chevron". The deal adds acreage and production in the prolific Permian shale basin of West Texas and south-east New Mexico and also increases Chevron's exposure to LNG at a time when natural gas is being viewed as the most favored transition fuel in the fight against climate change.

"It gives the combined entity the ability to high-grade its assets and focus on where the best cash returns are", Malek said.

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CNBC cited sources as saying that the Occidental bid contained more cash than the Chevron offer and would have required a shareholder vote.

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

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

As part of the merger agreement, Chevron will pay Anadarko shareholders $16.25 in cash plus 0.3869 Chevron shares for each Anadarko share held.

Head of research, Per Magnus Nysveen said: "We think the deal value price of $50 bn is surprisingly good for Chevron, as our base case valuation of Anadarko is $65 bn". Finally, Mizuho reissued a buy rating and issued a $55.00 price objective on shares of Anadarko Petroleum in a research report on Tuesday, February 12th. Equities analysts anticipate that Anadarko Petroleum will post 1.66 EPS for the current fiscal year.

"This is also subject to the success of Chevron's asset sales programme, which has now been upgraded from $5-10bn over 2018-20, to $15-20bn over 2020-22".

The transaction has been approved by the Boards of Directors of both companies and is expected to close in the second half of the year.

Chevron was advised by Credit Suisse Securities. Evercore Inc. and Goldman Sachs Group Inc advised Anadarko alongside law firms Wachtell, Lipton, Rosen & Katz and Vinson & Elkins LLP.

The deal announced Friday comes with USA crude prices up 40% this year and vaults Chevron into a new league. "Delivery of synergies and efficiencies will be critical in narrowing or overtaking its peers' returns". The deal makes Chevron the seventh largest national oil company, according to Rystad Energy.

Blas, Gilblom and Casey write for Bloomberg.