Economy

Chevron To Buy Anadarko In $33B Deal

Chevron To Buy Anadarko In $33B Deal”

The acquisition comes as the USA 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.

With the acquisition, Chevron gets access to Anadarko's liquid natural gas operations in Mozambique. The United States is also now the third-largest producer of LNG, super-cooled natural gas that enjoys record demand as a cheaper, cleaner alternative than coal for power generation.

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.

Shares of Anadarko jumped 32% at the opening bell Friday, while Chevron's stock fell 5.3%. "Oil is on a rebound yet Anadarko's stock price has been stagnant", said Chris Widell, CEO of Sponte Resources, a Dallas, Texas-based private exploration and production company. The combined company will produce an estimated 3.9 million barrels of oil equivalent per day (boepd), trailing only Exxon Mobil Corp among publicly traded companies, up from fourth. The oil giant also expects to streamline its portfolio by selling between $15 billion and $20 billion of assets.

The US$65 per-share stock-and-cash deal announced Friday sees Chevron doubling down on its expansion into the fast-expanding Permian Basin of West Texas and New Mexico, while also increasing its exposure to liquefied natural gas with Anadarko's project in Mozambique.

"It creates attractive growth opportunities in areas that play to Chevron's operational strengths and underscores our commitment to short-cycle, higher-return investments".

Anadarko shareholders will receive 0.3869 shares of Chevron and $16.25 in cash for each share they own, or $65 per share.

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.

-The transaction has a break-up fee equivalent to about 3 per cent of the deal value, according to a person familiar with the matter.

"The combination of Anadarko's premier, high-quality assets with our advantaged portfolio strengthens our leading position in the Permian, builds on our deep-water Gulf of Mexico capabilities and will grow our LNG business", Chevron's Chairman and Chief Executive Officer Michael Wirth said in a statement.

-Chevron will issue 200 million shares and pay US$8 billion in cash. It estimates that the combined company can drive out $1 billion in annual costs.

-Chevron expects the deal to add to free cash flow and earnings per share one year after closing, at US$60-a-barrel Brent. The company said will boost its share repurchase rate by US$1 billion to US$5 billion per year upon closing of the deal.

The boards of both companies have approved the transaction, and the deal is supposed to close in the second half of this year.

Evercore and Goldman Sachs are financial advisers to Anadarko, while Wachtell, Lipton, Rosen & Katz and Vinson & Elkins LLP are its legal advisers.



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