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Chevron Leaps to ‘Ultramajor’ Oil Status With Anadarko Deal

Chevron Corp. agreed to buy Anadarko Petroleum Corp. in a $33 billion deal that adds U.S. shale oil and African liquefied natural gas and puts it in the top ranks of the world’s largest energy companies.

The takeover puts Chevron neck-and-neck with the oil and gas production of Exxon Mobil Corp. and Royal Dutch Shell Plc, both of which have dominated Big Oil over the past decade. The combined company’s cash flow last year, $36.5 billion, would have exceeded Exxon’s.

“Chevron now joins the ranks of the ultramajors,” Roy Martin, an analyst at Wood Mackenzie Ltd., said in a note.

The $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. The new company will sell $15 billion to $20 billion of assets from 2020 to 2022 to reduce debt and return cash to investors.

Occidental Petroleum Corp. had made a $70-per-share bid for Anadarko and it’s now weighing whether to move forward with a counter offer, according to a person familiar with the matter. CNBC reported Occidental’s bid earlier.

Anadarko rose 32 percent to $61.78 in New York, but didn’t trade above the offer price, implying investors don’t expect a bidding war. Chevron fell 4.9 percent, the biggest drop since February last year.

The transaction is the biggest strategic move yet for Michael Wirth, the 58-year-old chemical engineer who became Chevron’s chief executive officer just 14 months ago. He has quickly shaken up the company by announcing an aggressive expansion plan for the Permian.

“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 Per Magnus Nysveen, head of research at consultant Rystad Energy AS in Oslo.

Anadarko, which is based in The Woodlands, Texas, has long been rumored as a takeover target for the world’s largest oil companies, offering a suite of assets including a massive LNG facility in Mozambique that’s racing against Exxon’s project to be the first operating in the country.

The deal is the biggest takeover in the oil and gas industry since Shell’s 47 billion pound ($61 billion) purchase of BG Group in 2015, according to data compiled by Bloomberg. Widening the measure to include chemicals and state-owned companies, both would be eclipsed by Saudi Aramco’s $69 billion acquisition of a majority stake in local petrochemical company Sabic this year.

The premium is high compared with most other acquisitions of oil companies valued at more than $1 billion. The average premium in such transactions was 11 percent last year and 22 percent in 2017, according to data compiled by Bloomberg.

“Consolidation in deep water and the shales makes complete industrial sense,” said Christyan Malek, the head of EMEA oil and gas research at JPMorgan Chase & Co. “It gives the combined entity the ability to high-grade its assets and focus on where the best cash returns are.”

What Bloomberg Intelligence Says

“Chevron’s deal for Anadarko escalates the race with Exxon Mobil for the Permian and delivery of synergies and efficiencies will be critical in narrowing or overtaking its peer’s returns.”–Fernando Valle, industry analyst, and Jonathan Mardini, associate analystClick here to view the research

The deal may put pressure on Shell to seek assets in the Permian, where the Anglo-Dutch company has said it wants to grow. Oil executives and bankers had in the past speculated that Shell may buy Anadarko because they have adjacent acreage. Shell has in the past several months held talks with Endeavor Energy Resources LP, the largest privately-owned company in the Permian that bankers say might be valued at $10 billion to $15 billion.
Source: Bloomberg

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