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Chevron boost assets with $33 bln Anadarko acquisition

Apr 14, 2019
4 min read
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Chevron Corporation said it agreed to acquire Anadarko Petroleum for US$33 billion in a deal that will propel the company into the top three global oil majors.

The acquisition will be through buying all of the outstanding shares of Anadarko in a stock and cash transaction valued at $65 per share, Chevron said.

Based on Chevron’s closing price on April 11th, 2019 and under the terms of the agreement, Anadarko shareholders will receive 0.3869 shares of Chevron and $16.25 in cash for each Anadarko share. The total enterprise value of the transaction is $50 billion.

“The acquisition of Anadarko will significantly enhance Chevron’s upstream portfolio and further strengthen its leading positions in large, attractive shale, deepwater and natural gas resource basins,” the statement said.

 Anadarko’s assets will add shale and tight, deepwater and LNG to Chevron’s portfolio.

In shale and tight, the combination of the two companies will create a 75-mile-wide corridor across the most attractive acreage in the Delaware basin, extending Chevron’s leading position as a producer in the Permian.

In deepwater, the acquisition will extend Chevron’s deepwater infrastructure network, and in LNG, the company will see the addition of a Mozambique greenfield project.

“This transaction builds strength on strength for Chevron,” said Chevron’s chairman and CEO Michael Wirth. “The combination of Anadarko’s premier, high-quality assets with our advantaged portfolio strengthens our leading position in the Permian, builds on our deepwater Gulf of Mexico capabilities and will grow our LNG business. It creates attractive growth opportunities in areas that play to Chevron’s operational strengths and underscores our commitment to short-cycle, higher-return investments.”

Chevron said the transaction is expected to achieve run-rate cost synergies of $1 billion before tax and capital spending reductions of $1 billion within a year of closing, while free cash flow and earnings per share are expected to gradually grow one year after closing, at $60 Brent.

Additionally, the company plans to divest $15 to $20 billion of assets between 2020 and 2022. The proceeds will be used to further reduce debt and return additional cash to shareholders.

As a result of higher expected free cash flow, Chevron plans to increase its share repurchase rate from $4 billion to $5 billion per year upon closing the transaction.

Roy Martin, senior analyst, corporate analysis at Wood Mackenzie said: “This is the biggest upstream deal since Shell and BG in 2015. Chevron now joins the ranks of the UltraMajors – and the big three becomes the big four.”

Once the deal closes, Chevron will now be the second-largest producing major, in 2019 terms. It was fourth. Martin added: “The acquisition makes the Majors’ peer group much more polarised. ExxonMobil, Chevron, Shell and BP are now in a league of their own. The deal plays to Chevron’s strengths, which are tight oil and LNG,” he said. “On top of this, it diversifies their growth options, while also giving them more in tight oil.”

The acquisition consideration is structured as 75 percent stock and 25 percent cash, providing an overall value of $65 per share based on the closing price of Chevron stock on April 11th, 2019.  In aggregate, upon closing of the transaction, Chevron will issue approximately 200 million shares of stock and pay approximately $8 billion in cash. Chevron will also assume estimated net debt of $15 billion. Total enterprise value of $50 billion includes the assumption of net debt and book value of non-controlling interest.

“The strategic combination of Chevron and Anadarko will form a stronger and better company with world-class assets, people and opportunities,” said Anadarko Chairman and CEO Al Walker. “I have tremendous respect for Mike and his leadership team and believe Chevron’s strategy, scale and operational capabilities will further accelerate the value of Anadarko’s assets.”

Upon acquisition closing expected in the second half of the year, subject to regulatory and Anadarko shareholder approval, the company will continue be led by Michael Wirth as chairman and CEO. Chevron will remain headquartered in San Ramon, California.

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