Chevron pumped up over $50bn acquisition of Anadarko

Data by YCharts

Data by YCharts

Harris Associates L P now owns 13,514,955 shares of the oil and gas development company's stock worth $592,496,000 after acquiring an additional 4,500,125 shares during the period. This is cheaper and produces oil more quickly than costlier offshore and LNG projects that take years to generate cash.

That is largely being driven by the energy powerhouse Saudi Arabia, which last month removed another 324,000 barrels of oil per day from the market. It's also a major producer in the Gulf of Mexico.

As oil companies have become more efficient at producing shale oil, which has changed the global equation by making US oil a rival against the cheap oil produced by Organization of the Petroleum Exporting Countries.

Chevron Chief Executive Mike Wirth has signaled in recent months that he was interested in potential deals. Wirth, who assumed his role in February 2018, expects the deal will allow Chevron to "win in any environment", playing to the company's strengths in shale, deep water and natural gas. Anadarko shares jumped 32% while Chevron fell almost 5%. Anadarko shares rose with 33,6% on Friday after the announcement, which means a 37% premium to the Thursday close.

An increase in share buybacks from $4 billion to $5 billion per year.

The cash-and-stock deal announced Friday comes as US crude prices have shot up 40% this year. I think there's going to be more consolidation in the industry. The company is bringing industrial scale to shale drilling, once the domain of small, independent wildcatters.

Chevron, which already has 2.3 million acres in the Permian Basin, said the deal to buy Anadarko would give the combined company a 75-mile (120-km)-wide corridor across the Permian's DE basin, on the Texas-New Mexico border.

The acquisition consideration is structured as 75 percent stock and 25 percent cash, providing an overall value of US$65 per share based on the closing price of Chevron stock on April 11, 2019.

With control of so much territory, Chevron will be able to set up multiple production hubs, another efficiency advantage.

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Expanding Shale Operations Further: Anadarko is the biggest upstream player in Colorado's DJ Basin and has attractive assets in the Delaware Basin in Texas.

"If you have large acreage positions like Pioneer and Concho, or lesser but more contiguous positions like Parsley Energy, and you're a pure-play Permian producer, there's no doubt that you are on the radar screen for these majors", said Rob Thummel, portfolio manager at Tortoise Capital Advisors. The acquisition is subject to Anadarko shareholder approval.

Expenses from that project are expected to reach $4bn over several years.

With the purchase, Chevron expects to improve its position in the Permian Basin, extend its infrastructure network in the Gulf of Mexico, and generally improve its natural gas holdings.

"This deal seems flawless".

Among the best performing non-leveraged ETFs of Friday, the VanEck Vectors Unconventional Oil & Gas ETF (NYSEArca: FRAK) jumped 6.4% and iShares U.S. Oil & Gas Exploration & Production ETF (Cboe: IEO) advanced 4.4%.

Occidental Petroleum Corp. had made a US$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.

Chevron said the deal will create annual synergy savings of £1.5billion. The enterprise value of the deal is $50 billion.

As part of the merger agreement, Chevron will pay Anadarko shareholders $16.25 in cash plus 0.3869 Chevron shares for each Anadarko share held.

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