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Chevron buys Anadarko for $33bn in shale, LNG push

Chevron Corp doubled down on its bet on surging US oil and gas output on Friday, saying it would buy shale producer Anadarko Petroleum Corp for $33 billion in cash and stock that will make it the second-largest crude producer in the world. 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. It expands Chevron’s reach in two areas where US energy output is breaking records: shale from the Permian Basin of west Texas and New Mexico, and liquefied natural gas (LNG). These have helped make the United States one of the world’s largest energy exporters.

“Chevron now joins the ranks of the ‘ultramajors’ — and the big three becomes the big four,” said Roy Martin, senior analyst at consultants Wood Mackenzie. “The acquisition makes the majors’ peer group much more polarised. Exxon Mobil, Chevron, Shell and BP are now in a league of their own.” These companies are turning to shale and its revolutionary techniques of fracking, blasting sand and water into formations to extract oil. This is cheaper and produces oil more quickly than costlier offshore and LNG projects that take years to generate cash.

The shale oil-and-gas boom reversed a long decline in US crude production and propelled the country to a record 12 million barrels a day (bpd), more than Russia and Saudi Arabia. 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 combined companies are expected to produce more than 1.6 million barrels of oil equivalent per day (boepd) in the United States this year and 3.9 million boepd globally, according to Wood Mackenzie.

Chevron Chief Executive Officer Mike Wirth said the deal offers a “compelling and unique fit” because the companies operate in similar areas, both with holdings in shale, offshore, and LNG projects. Chevron also expects shale to generate profits for its pipeline, trading and refining units.

“We are the best company to combine with Anadarko and Anadarko is the best company to combine with us,” Wirth said.

Chevron’s pledge to restrain expenditures has made it a favourite among energy stocks, with its shares up 13.8 per cent this year. It plans to sell some $15 billion in assets over time to offset the Anadarko deal.

Chevron shares fell 4.9 per cent to $119.76 on Friday. Anadarko shares jumped 32 per cent, reflecting the offer’s 39 per cent premium over Thursday’s close. Before the deal, Chevron shares had gained 25 per cent over the last two years, while Anadarko had dropped 23 per cent. In that time, US crude oil prices have risen 20 per cent.

It is the oil industry’s largest deal since Royal Dutch Shell bought BG Group in 2016, and it sparked speculation that other shale producers are in play. Shares of Noble Energy rose 7 per cent, while Pioneer Natural Resources Co jumped more than 11 per cent.

Chevron, Exxon, Royal Dutch Shell Plc and BP Plc largely missed out on the first phase of the shale bonanza, when more nimble independent producers such as Anadarko pioneered shale drilling technology and leased Permian acreage on the cheap.

Analysts predict further consolidation as the smaller companies that revolutionised the industry through advances in horizontal drilling and hydraulic fracking have seen their stock prices languish and have curtailed spending due weak returns.

Chevron, which already has 2.3 million acres in the Permian Basin, said the combined company would have a 75-mile (120-km)-wide corridor across the Permian’s Delaware basin, on the Texas-New Mexico border.

“We will now see Chevron emerging as the clear leader among all Permian players, both in terms of production growth and as a cost leader,” said Rystad Energy head of analysis Per Magnus Nysveen, noting that Anadarko’s acreage is in the “sweetest spot” of the Delaware Basin.

Chevron also owns mineral rights under some of the Anadarko Permian properties, saving royalties others would have to pay, said Drillinginfo analyst Andrew Dittmar. He estimated Chevron is paying about $50,000 an acre for Anadarko’s west Texas holdings.

The Permian produces about 4 million barrels per day, and is expected to hit 5.4 million bpd by 2023, according to IHS Markit, more than the total production of any Opec country other than Saudi Arabia.

Anadarko also has a Mozambique LNG project, part of one of the industry’s largest planned current investments, which Wirth said he still expects to move to final approval “sooner rather than later” this year. Expenses from that project are expected to reach $4 billion over several years.

The tie-up with Anadarko adds to Chevron’s deepwater investments in the Gulf of Mexico and gives it a stake in growing production in the US Rocky Mountains in Colorado.

The $65-per-share offer was structured as 75 per cent stock and 25 per cent cash, and the company will also take on $15 billion of Anadarko’s debt. “This deal seems perfect. 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.
  • Chevron Corp
  • US Oil and Gas Output
  • Anadarko Petroleum Corp
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  • Crude oil producer
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