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Chevron Corp. (CVX - Free Report) has agreed to buy Noble Energy for $5 billion in an all-stock deal or $10.38 per share. It will represent the biggest deal in the U.S. energy space since the COVID-19 pandemic, which has crushed global demand for oil and pushed crude prices to historic lows.
Inside the Deal
Under the terms of the deal, Noble Energy shareholders will get 0.1191 shares of Chevron common stock for each share owned at the closing of the transaction. This implies 12% premium to the 10-day Noble Energy average closing price. The total enterprise value of the deal is $13 billion, including debt. Noble shareholders will own about 3% of the combined company.
The acquisition of Noble Energy provides Chevron with low-cost, proved reserves and attractive undeveloped resources that will enhance an already-advantaged upstream portfolio. It will expand Chevron’s presence in the DJ Basin of Colorado and the Permian Basin across West Texas and New Mexico. The deal will also give Chevron access to Noble’s flagship Leviathan field, the largest natural gas field in the Eastern Mediterranean, which started production late last year (read: Time to Cash in On the Depressed Oil Price? ETFs in Focus).
The transaction will generate about $300 million of annual pre-tax savings. Also, it will be accretive to its return on capital employed, free cash flow and earnings per share within one year of closing, assuming a $40 price on Brent crude. The deal, which has been approved by the Board of Directors of both companies, is expected to close in the in the fourth quarter of 2020 and is subject to regulatory approvals.
Market Impact
Following the announcement of the deal, shares of Noble Energy climbed 5.4% to close the day and crushed its average volume as nearly 92.3 million shares moved hands compared with 12.4 million on average. Meanwhile, shares of Chevron were down 2.2% (see: all the Energy ETFs here).
The news has put the spotlight on a number of energy ETFs that could be the best ways for investors to tap the opportunity arising from the CVX-NBL deal. Investors should keep a close eye on the movement of these ETFs over the coming weeks:
This is the largest and the most-popular ETF in the energy space with AUM of $10.2 billion and average daily volume of 32.8 million shares per day. Expense ratio is 0.13%. The fund follows the Energy Select Sector Index and holds 26 securities in its basket. Chevron accounts for 23.3% share while Noble Energy makes up for 0.7% of assets. The fund has a Zacks ETF Rank #3 (Hold) with a Hugh risk outlook.
This ETF tracks the Dow Jones U.S. Oil & Gas Index, giving investors exposure to U.S. companies that produce and distribute oil and gas. It holds 49 stocks in its basket with AUM of $447.8 million and average daily volume of about 2.2 million shares. The product charges 42 bps in fees per year from investors. Chevron and Noble Energy makes up for 21.4% and 0.6% share, respectively.
This fund manages $2.9 billion in asset base and provides exposure to a basket of 123 energy stocks by tracking the MSCI US Investable Market Energy 25/50 Index. CVX and NBL account for 21% and 0.6% allocation, respectively. The product sees a good volume of about 1.5 million shares and charges 10 bps in annual fees. It has a Zacks ETF Rank #5 (Strong Sell) with a High risk outlook.
The fund follows the MSCI USA IMI Energy Index, holding 113 stocks in its basket. Of these, CVX and NBL make up for 20.9% and 0.5% of assets, respectively. The product charges 8 bps in annual fees and trades in a good volume of around 1.2 million shares. It has accumulated $448.4 million in its asset base. FENY has a Zacks ETF Rank #5 with a High risk outlook.
SPDR S&P Oil & Gas Exploration & Production ETF (XOP - Free Report)
This fund provides exposure to oil and gas exploration companies by tracking the S&P Oil & Gas Exploration & Production Select Industry Index. It holds 41 stocks in its basket with Chevron and Noble accounting for 5% share each. The ETF has amassed $2.1 billion and charges 35 bps in annual fees. Volume is good as the fund exchanges around 11.7 million shares per day on average. The fund has a Zacks ETF Rank #5 with a High risk outlook (read: Best Energy ETFs & Stocks of Q2).
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Energy ETFs to Surge on Chevron-Noble Energy Deal
Chevron Corp. (CVX - Free Report) has agreed to buy Noble Energy for $5 billion in an all-stock deal or $10.38 per share. It will represent the biggest deal in the U.S. energy space since the COVID-19 pandemic, which has crushed global demand for oil and pushed crude prices to historic lows.
Inside the Deal
Under the terms of the deal, Noble Energy shareholders will get 0.1191 shares of Chevron common stock for each share owned at the closing of the transaction. This implies 12% premium to the 10-day Noble Energy average closing price. The total enterprise value of the deal is $13 billion, including debt. Noble shareholders will own about 3% of the combined company.
The acquisition of Noble Energy provides Chevron with low-cost, proved reserves and attractive undeveloped resources that will enhance an already-advantaged upstream portfolio. It will expand Chevron’s presence in the DJ Basin of Colorado and the Permian Basin across West Texas and New Mexico. The deal will also give Chevron access to Noble’s flagship Leviathan field, the largest natural gas field in the Eastern Mediterranean, which started production late last year (read: Time to Cash in On the Depressed Oil Price? ETFs in Focus).
The transaction will generate about $300 million of annual pre-tax savings. Also, it will be accretive to its return on capital employed, free cash flow and earnings per share within one year of closing, assuming a $40 price on Brent crude. The deal, which has been approved by the Board of Directors of both companies, is expected to close in the in the fourth quarter of 2020 and is subject to regulatory approvals.
Market Impact
Following the announcement of the deal, shares of Noble Energy climbed 5.4% to close the day and crushed its average volume as nearly 92.3 million shares moved hands compared with 12.4 million on average. Meanwhile, shares of Chevron were down 2.2% (see: all the Energy ETFs here).
The news has put the spotlight on a number of energy ETFs that could be the best ways for investors to tap the opportunity arising from the CVX-NBL deal. Investors should keep a close eye on the movement of these ETFs over the coming weeks:
Energy Select Sector SPDR (XLE - Free Report)
This is the largest and the most-popular ETF in the energy space with AUM of $10.2 billion and average daily volume of 32.8 million shares per day. Expense ratio is 0.13%. The fund follows the Energy Select Sector Index and holds 26 securities in its basket. Chevron accounts for 23.3% share while Noble Energy makes up for 0.7% of assets. The fund has a Zacks ETF Rank #3 (Hold) with a Hugh risk outlook.
iShares U.S. Energy ETF (IYE - Free Report)
This ETF tracks the Dow Jones U.S. Oil & Gas Index, giving investors exposure to U.S. companies that produce and distribute oil and gas. It holds 49 stocks in its basket with AUM of $447.8 million and average daily volume of about 2.2 million shares. The product charges 42 bps in fees per year from investors. Chevron and Noble Energy makes up for 21.4% and 0.6% share, respectively.
Vanguard Energy ETF (VDE - Free Report)
This fund manages $2.9 billion in asset base and provides exposure to a basket of 123 energy stocks by tracking the MSCI US Investable Market Energy 25/50 Index. CVX and NBL account for 21% and 0.6% allocation, respectively. The product sees a good volume of about 1.5 million shares and charges 10 bps in annual fees. It has a Zacks ETF Rank #5 (Strong Sell) with a High risk outlook.
Fidelity MSCI Energy Index ETF (FENY - Free Report)
The fund follows the MSCI USA IMI Energy Index, holding 113 stocks in its basket. Of these, CVX and NBL make up for 20.9% and 0.5% of assets, respectively. The product charges 8 bps in annual fees and trades in a good volume of around 1.2 million shares. It has accumulated $448.4 million in its asset base. FENY has a Zacks ETF Rank #5 with a High risk outlook.
SPDR S&P Oil & Gas Exploration & Production ETF (XOP - Free Report)
This fund provides exposure to oil and gas exploration companies by tracking the S&P Oil & Gas Exploration & Production Select Industry Index. It holds 41 stocks in its basket with Chevron and Noble accounting for 5% share each. The ETF has amassed $2.1 billion and charges 35 bps in annual fees. Volume is good as the fund exchanges around 11.7 million shares per day on average. The fund has a Zacks ETF Rank #5 with a High risk outlook (read: Best Energy ETFs & Stocks of Q2).
Want key ETF info delivered straight to your inbox?
Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>