Chevron announces agreement to acquire Anadarko
Chevron is to acquire Anadarko Petroleum in a deal valued at $50bn.
The deal, which also includes the acquisition of Anadarko subsidiary Western Midstream Partners, will strengthen Chevron’s leading positions in large, attractive shale, deepwater and natural gas resource basins. According to Chevron Chairman and CEO Michael Wirth, it will ‘create attractive growth opportunities in areas that play to Chevron’s operational strengths and underscores our commitment to short-cycle, higher-return investments’ and is expected to generate ‘annual run-rate synergies of approximately $2bn’.
Noting that the deal is ‘reflective of multiple trends that are becoming increasingly evident in the global energy market’, Jarand Rystad, founder and Chief Executive of Rystad Energy consultancy, says: ‘Energy giants recognise that they need to invest more in the shale sector and in renewable energy. At the same time, due also to the lower cost of capital prevalent today, it makes sense for modern E&P companies to favour higher leverage and lower equity share, and instead use debt capital to fund investments and operations, while enhancing shareholder value through share buy-backs and higher dividends.’
He adds: ‘This acquisition represents a golden opportunity for Chevron to achieve a more leveraged capital structure that is better suited for the lower risk energy projects of the future.’
Looking at the respective asset portfolios of Chevron and Anadarko, Rystad Energy founding partner and Head of Research Per Magnus Nysveen, remarks: ‘We have always considered Anadarko as having the best positioned acreage in the sweetest spot of the Permian Delaware Basin. Combining these shale assets with Chevron’s strong legacy position in the same area, 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.’
Nysveen continues: ‘The combined entity will be by far the largest producer in the Permian, which is the fastest growing basin in the world, well ahead of ExxonMobil. By 2025 the merged entity will be able to produce as much as 1.6mn b/d of oil from the Permian Basin alone.’
Chevron and Anadarko, which currently rank as the world’s 10th and 41st largest producers of oil and gas, respectively, will climb to seventh place after the merger. The new entity will jump ahead of Shell and BP in the rankings, and will trail only ExxonMobil and the five biggest national oil companies.
Rystad Energy also sees strong synergies between the two companies in the US Gulf of Mexico, where the merged entity will become the largest producer, surpassing current leaders BP and Shell. Synergies are also apparent in East Africa, which is emerging as a vital region in the buoyant global market for LNG. Chevron and Anadarko also have overlapping portfolios in Latin America.
Nysveen concludes: ‘Despite a 37% premium, we think the deal value price of $50bn is surprisingly good for Chevron. The implicit oil price in the deal is $60/b, while the oil price today is $71/b. Adding synergies, we see a strong potential for value capture here.’
Meanwhile, Jonathan Markham, Upstream Oil & Gas Analyst at GlobalData, notes: ‘The deal is the largest acquisition by a supermajor since Shell acquired BG Group for $53bn in 2015. It will shake up the US upstream sector, creating a company that rivals ExxonMobil domestically. It will also create opportunities in the international space, with Chevron targeting $15–20bn of divestment in the next four years. Key deals could include Chevron’s assets in the UK, Denmark, Thailand, Indonesia, Nigeria and Angola, as well as Anadarko’s operations in Algeria and Ghana.’
Anadarko has well positioned shale acreage in the Permian Basin