The Petroleum Council of Israel's Energy Ministry recently vouched for Chevron Corporation's (CVX - Free Report) impending acquisition of Noble Energy's (NBL - Free Report) stakes in the Asian country’s two natural gas fields, which constitute a major component of the deal.
Israeli officials are favouring this purchase despite the fact that shareholders have not yet voted on the proposed deal announced in July wherein Chevronreached an agreement to buy Noble Energy in an all-stock transaction worth $5 billion. Moreover, some environmental groups are protesting against divesting Israel's natural resources to Chevron and conveyed their worries over the issue at the country's parliament.
In July, this U.S. supermajor agreed to pay $10.38 per share of Noble, which accounted for a 7.6% premium to the latter's last closing price prior to the deal's announcement. The takeover, which is one of the largest energy deal wins since the beginning of the coronavirus pandemic, will also include Noble Energy's hefty debt load, thereby escalating the deal value to approximately $13 billion.
This strategic move will provide the to-be-acquired company’s stockholders with 0.1191 shares of Chevron for each share held.
Rationale Behind the Deal
The buyout of Noble Energy’s assets is anticipated to expand Chevron’s presence in the DJ Basin of Colorado as well as the Permian Basin across West Texas and New Mexico. Particularly, in the Permian, which is United States’ number one basin, Noble Energy owns a total of 92,000 acres. The acquisition will also generate potential annual cost savings of $300 million within a year of the deal's conclusion.
Further, this integration will expand Chevron’s international footprint. The company will have access to Noble Energy’s low-cost, proven reserves along with cash-generating offshore assets in Israel, especially the flagship Leviathan natural gas project, thereby boosting its base in the Mediterranean. Lest we forget, Chevron will also gain Noble Energy’s interests in its midstream partnership, Noble Midstream Partners LP (NBLX - Free Report) .
Per Michael Wirth, Chevron chairman and CEO, Noble Energy’s diversified, high-quality portfolio will improve the company’s topographical diversity, increase its capital flexibility and also better its strong cash flow generating ability. Further, these properties are expected to enhance Chevron’s operational potencies. Precisely, the imminent consolidation emphasizes the company’s commitment to disciplined capital deployment.
This plum deal in the U.S. energy sector during 2020 is clinched a little more than a year after Chevron withdrew its acquisition offer to Anadarko Petroleum, attributable to being outdone by Occidental Petroleum’s (OXY - Free Report) higher bid.
The transaction is expected to close by the fourth quarter of 2020 and is contingent on pending approvals and customary conditions. Upon the completion of the deal, Chevron will issue 58 million shares while Noble Energy stakeholders will possess 3% of the combined company.
Shares of this San Ramon, CA-based entity have plunged 35.9% year to date compared with the 45.5% decline of its industry. The historic oil market crash and the coronavirus-induced demand woes for the fuel caused massive curtailments in the energy players’ capital expenditure, which in turn, created an extremely challenging operating environment for the big oil players like Chevron. The signing of a $5-billion integration pact amid a crippling economic condition is expected to benefit the company by adding to its free cash flow and earnings per share a year later from the date of the deal’s culmination, assuming a Brent price of $40 a barrel.
About the Company
Chevron is one of the largest publicly-traded oil and gas companies in the world with operations spread to almost every corner of the globe. Integral to the Dow Jones Industrial Average, this currently Zacks Rank #3 (Hold) player is a fully-integrated company, participating in every energy-related aspect, ranging from oil production to refining and marketing. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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