Chevron will acquire Anadarko Petroleum in a $33 billion deal

Data by YCharts

The acquisition of Anadarko could give Chevron a little more breathing room when crude prices do fall.

Last month, Chevron had already announced plans to significantly grow its production in the Permian, where the USA supermajor has added nearly 7 billion barrels of resources and doubled its portfolio value over the past two years. It expands Chevron's reach in two areas where USA energy output is breaking records: shale from the Permian Basin of west Texas and New Mexico, and liquefied natural gas (LNG).

With savings the companies plan to book and rising cash flow, Chevron said Friday that it will bump up annual stock buybacks to $5 billion, from $4 billion a year, once the transaction is complete.

Following the transaction announcement, Anadarko's shares surged more than 30 percent in pre-market trade on the NYSE on Friday. "Oil is on a rebound yet Anadarko's stock price has been stagnant", said Chris Widell, CEO of Sponte Resources, a Dallas, Texas-based private exploration and production company.

Anadarko had $13.4 billion in revenues a year ago and pumped 666,000 barrels of oil equivalent per day.

Chevron regularly evaluates potential deals and has a number of companies "that we're watching", said Wirth.

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. The combined company will also control a 75-mile-wide corridor across the Delaware Basin, just beside the Permian Basin, a region bountiful with natural gas that has been exploited through shale drilling.

-The transaction has a break-up fee equivalent to about 3 per cent of the deal value, according to a person familiar with the matter.

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Chevron said the combined entity would have had daily output of 3.596 million barrels equivalent of oil past year, compared with Shell's 3.666 million.

"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". Chevron will issue about 200 million shares and pay approximately $8 billion in cash.

Anadarko also has a Mozambique LNG project, part of one of the industry's largest planned current investments, which Wirth said he still expects to move to final approval "sooner rather than later" this year.

"We are the best company to combine with Anadarko and Anadarko is the best company to combine with us", Wirth said in an interview.

Chevron plans to divest $15 billion to $20 billion in assets between 2020 and 2022, with proceeds used to lower debt and to return additional cash to shareholders, the company said.

The deal announced Friday comes with USA crude prices up 40% this year and vaults Chevron into a new league. Credit Suisse Securities (USA) LLC is Chevron's financial adviser, while Paul, Weiss, Rifkind, Wharton & Garrison LLP is its legal adviser.

Chevron shares fell 4 per cent as investors weighed the cost of the deal, which includes taking on $15 billion of Anadarko's debt. Evercore Inc. and Goldman Sachs Group Inc advised Anadarko alongside law firms Wachtell, Lipton, Rosen & Katz and Vinson & Elkins LLP.

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