Per a drillinginfo report, the value of mergers & acquisitions (M&A) in the U.S. upstream market hit a four-year high of $84 billion in 2018. M&As strengthen portfolios, expand geographical footprint and lend a competitive edge to companies. The latest deal between Anadarko Petroleum Corporation (APC - Free Report) and Chevron Corporation (CVX - Free Report) is based on similar objectives.
Per the deal, Anadarko Petroleum’s shareholders will receive 75% stock and 25% cash, the overall value being $65 per share (39% premium based on the closing price as of Apr 11). The total value of the deal is $48 billion, which includes a stock-and-cash transaction of $33 billion and estimated net debt of $15 billion. We expect this acquisition to create a ripple among oil and energy super majors, resulting in more mergers and acquisitions in the space to offset the likely benefit Chevron will be generating out of this deal.
What’s in it for Chevron?
Anadarko Petroleum’s premium shale properties — the Delaware and Denver-Julesburg (DJ) basins, and the Deepwater Gulf of Mexico (GOM), are primary production drivers. Such high-quality assets had also attracted an offer from Occidental Petroleum Corporation (OXY).
The deal will expand Chevron’s position in the Permian Basin by 240K net acres to more than 1.4M net acres, positioning the company among the leading operators. Notably, the Permian Basin is now the largest oil-producing region in the United States and the second largest globally. We believe Anadarko Petroleum’s high-quality assets in this region is one of the factors behind Chevron’s decision provide premium value for Anadarko Petroleum’s shares.
The deal also raises Chevron’s deepwater hub count in the Gulf of Mexico from six to 16. It also provides Chevron a stake in Colorado's DJ Basin and the Mozambique LNG project.
Are More Deals in Store?
The Shale revolution has significantly increased oil and gas and hydro-carbon production in the United States. This has attracted the attention of oil and gas super majors who were otherwise busy exploring deep waters and the Middle East.
M&A activities have ramped up in the oil and energy sector of late, with bigger companies taking the smaller counterparts. To be the number one and to expand in U.S. shale, companies are getting involved in more numbers of M&A activities.
With Chevron making efforts to expand onshore operations, we expect Exxon Mobil Corporation (XOM - Free Report) to expand its U.S. onshore holdings. At present, Noble Energy (NBL - Free Report) and Pioneer Natural Resources Company (PXD - Free Report) have strong holdings in the Permian Basin and could receive takeover offers from super majors.
Shares of Anadarko Petroleum have gained 33% since the announcement of the deal on Apr 12, outperforming the industry’s 6.5 % rise.
Anadarko Petroleum presently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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