Deal to acquire Anadarko positions Chevron as Permian leader

Chevron Corporation has agreed to buy Anadarko Petroleum Corporation in a cash and stock deal which values Anadarko at US$50 billion and creates growth opportunities for Chevron in areas which play to its operational strengths.

“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,” said Michael With, Chevron chairman and chief executive officer.

In 2018’s fourth quarter, Anadarko produced 691,000 boe/d (nearly 60% oil) from the Denver-Julesburg (DJ) basin (40%), the Permian basin (20%), and the Gulf of Mexico (20%), Cowen analysts said in a research note dated the 11^th April.

Upon close, Chevron would become the second-largest producing major in 2019 terms from its current position at number four, according to Wood Mackenzie analysts, and puts ExxonMobil, Chevron, Shell, and BP “in a league of their own,” said Roy Martin, Wood Mackenzie senior analyst, corporate analysis.

The new entity would move ahead of Shell and BP in terms of oil and gas production, trailing only ExxonMobil and the five biggest national oil companies in terms of the world’s largest producers of oil and gas, according to Rystad Energy.

Tight oil

As of the 5^th February, Anadarko was operating 14 drilling rigs in the US onshore, with nine in the Delaware basin, four in the DJ basin, and one in the Powder River basin.

Anadarko is the largest producer in Colorado’s DJ basin, where its 400,000 net acres are estimated to hold more than two billion boe of recoverable resources. In the Permian’s Delaware basin, Anadarko holds nearly 600,000 gross acres and 8,500 feet of stacked oil potential.

The combination of the two companies will create a 75-mile-wide corridor across Delaware basin acreage.

“By buying Anadarko, they take on a highly contiguous Delaware basin position in the Permian. Chevron ought to be able to do more with the acreage than Anadarko, which lagged behind in terms of well productivity,” WoodMac’s Mr Martin said.

“We have always considered Anadarko as having the best positioned acreage in the sweetest spot of the Permian Delaware basin,” commented Per Magnus Nysveen, Rystad Energy founding partner and head of research.

The combination of Anadarko’s Permian assets with Chevron’s positions the company to emerge “the clear leader among all Permian players, both in terms of production growth and as a cost leader,” he said.

“By 2025 the merged entity will be able to produce as much 1.6 million b/d of oil from the Permian basin alone,” Mr Nysveen said.

Chevron expects the combine to enhance its existing position in the deep-water Gulf of Mexico and extend its deep-water infrastructure network. Anadarko is a large leaseholder and producer in the deep-water gulf, with infrastructure which includes ten operated deep-water facilities.

The company’s newest spar facilities, Lucius and Heidelberg, began production in January 2015 and January 2016 respectively.

Chevron would gain a resource base in Mozambique to support growing LNG demand. Anadarko is a 26.5% owner and operator of Mozambique LNG, a 12.88 million-tonne/year LNG project expected to take final investment decision in the first half of this year.

Plans for the onshore consists of two initial LNG trains to support Golfinho-Atum field, which lies entirely within Offshore Area 1, where the company and its partners have discovered 75 tcf of recoverable natural gas resources.

With the deal, Chevron gains access to Western Midstream Partners LP.

“Chevron has been noticeably absent in the midstream rush of the past couple of years. It now takes a 55% stake in Western Gas, which goes a long way toward fixing that,” said RT Dukes, WoodMac research director, Lower 48 oil and gas.

“The structure was simplified last year, “giving Chevron a vehicle to spin assets down in the future if needed,” RT Dukes said.

Transaction details

The 25% cash, 75% stock deal values Anadarko at US$50 billion. The offer is priced at US$65/share, representing a 39% premium over Anadarko’s close on the 11^th April.

In aggregate, upon closing, Chevron will issue some 200 million shares of stock and pay about US$8 billion in cash. Chevron will also assume estimated net debt of US$15 billion.

The transaction is expected to generate annual run-rate synergies of US$2 billion and will be accretive to free cash flow and earnings one year after close, said Michael Wirth, Chevron chairman and chief executive officer.

Using the deal size as a marker, RBC analyst Scott Hanold sees synergies moving upward to US$4-5 billion “as the portfolios get rationalised and priorities are clarified,” subject to “the success of Chevron’s asset sales programme, which has now been upgraded from US$5-10 billion over 2018-20, to US$15-20 billion over 2020-22.

“Looking through the lens of assets with limited growth potential,” he said, Chevron could divest assets in Canada, Colombia, Azerbaijan, and select parts of its Asian portfolio.

The transaction, approved by both companies’ boards, is expected to close in the second half of this year, subject to Anadarko shareholder approval, regulatory approvals, and other customary closing conditions.

Upon closing, the combine will be led by Michael Wirth as chairman and chief executive officer and remain headquartered in San Ramon, California.

Source: Oil & Gas Journal