Occidental makes rival bid for Anadarko

Following Chevron’s $50bn deal to acquire Anadarko Petroleum, Anadarko has now received an unsolicited proposal from Occidental Petroleum. Under the proposal, Anadarko shareholders would receive $38 in cash and 0.6094 shares of Occidental common stock for each share of Anadarko common stock, roughly 20% more than Chevron’s earlier offer.

Anadarko says its board of directors will carefully review Occidental's proposal to determine the course of action that it believes is in the best interest of the company's stockholders. At present, the board ‘has not made any determination as to whether Occidental's proposal constitutes, or could reasonably be expected to result in, a superior proposal under the terms of the Chevron merger agreement’, said Anadarko in a company statement.

Commenting on this latest development, Zoe Sutherland, Corporate Analyst at Wood Mackenzie, says: ‘The proposed deal would put Occidental alongside ConocoPhillips in a peer group of two, as a “super-independent”. The deal underscores Occidental's need to scale up in the Permian Basin. If the deal goes through, it would give the company ExxonMobil or Chevron-like Permian scale, and set them up to join the million barrels of oil equivalent per day Permian club in the late 2020s, according to our base case. The deal highlights that diversity is still valued by US independents, and would mark Occidental's entry into deepwater Gulf of Mexico and LNG.’

She adds: ‘Financially, the deal would be a big stretch for Occidental. Its gearing ratio at the end of the fourth quarter was 25%. A potential transaction would materially increase the company's leverage ratios, and stretch its balance sheet.’

Sutherland says that Occidental's enhanced oil recovery (EOR) skills could unlock value from the expanded opportunity set. ‘Occidental has a fantastic track record for EOR, and is currently the largest carbon dioxide injector in the Permian Basin. In addition, Occidental has a track record of operating in areas of high geopolitical risk. It is less likely to divest the Algeria and Ghana components of Anadarko's portfolio.’