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Chevron strikes first!
$13 billion acquisition of Noble Energy largest US oil deal since COVID-19 crash
Steve Sutherlin Petroleum News
Chevron’s July 20 announcement of a $13 billion deal to acquire Noble Energy is a sign that Chevron sees better times ahead for oil and gas demand, and for energy prices.
The transaction is the largest U.S. energy deal since oil prices were decimated to historic lows in April, due to the COVID-19 pandemic and its deflating effect on worldwide demand for petroleum - particularly in transportation fuels.
The deal represents a substantial acceleration of the process of consolidation, where weaker players and their assets are acquired in down markets by those with stronger balance sheets, a time-worn element of market recoveries in the highly cyclical oil and gas industry.
Uncertainty in the market may have delivered Chevron with a bargain. While oil prices are recovering from the depths of April, prices have been moderated by concerns over new outbreaks of COVID-19 in portions of the United States and elsewhere, thus asset prices remain subdued.
“This is an attractive transaction that strengthens Chevron’s performance … through high-quality, cash-producing assets that are complementary to Chevron’s global portfolio and capabilities … low-cost proved reserve and resource additions … and achievable synergies that we expect to drive accretive financial metrics and enhance our flexible capital program,” Mike Wirth, Chevron chairman and CEO said in the July 20 conference call.
Based on Noble’s proved reserves at year-end 2019, the transaction will add approximately 18% to Chevron’s year-end 2019 proved oil and gas reserves at an average acquisition cost of less than $5 per barrel of oil equivalent, and almost 7 billion barrels of risked resource for less than $1.50 per boe, Chevron said.
Chevron, pending approval of Noble shareholders and regulators, is set to acquire all outstanding shares of Noble in an all-stock transaction valued at $5 billion, or $10.38 per share - 0.1191 shares of Chevron for each Noble share based on Chevron’s closing price on July 17.
The total enterprise value, including debt, of the transaction is $13 billion.
Building on strength Noble’s debt load very likely was a catalyst for its management to enter the Chevron agreement.
Noble entered 2020 with long term debt of about $7.4 billion. Seven months ago, Noble sported a market capitalization of about $12 billion, but as of July 22, its market cap stood at $5.26 billion.
Chevron’s market cap on July 22 was over $170 billion, and its long term debt totaled only $23.6 billion at year end 2019.
Chevron has weathered the downturn well compared to other oil companies.
Chevron stock has bounced back from its coronavirus low share price by 76% to $91 on July 22, from $51.60. By contrast, Exxon stock moved from an April low of $30 to $43.61 on July 22, a 45% gain.
“Chevron (is) taking advantage of its strong relative performance versus the U.S. exploration and production companies and capitalizing on the downturn to buy into some high-quality assets,” said Anish Kapadia, head of London-based independent oil and mining advisory Palissy Advisors.
With the Noble deal, Chevron will bolster its 2 million-acre position in the Permian Basin, picking up 92,000 largely contiguous and adjacent acres.
Chevron also will gain new acreage in the DJ Basin of Colorado, “a proven de-risked unconventional basin that ... gives us another piston in the unconventional engine,” Wirth said.
The company will take over an operation of a natural gas project in the Eastern Mediterranean.
“Anchored by the Leviathan and Tamar assets, and supported by offtake agreements from Israel, Egypt and Jordan, these assets are expected to generate strong cash flow for decades,” Wirth said, adding that Chevron will get a total of six exploration blocks in Egypt and a discovered resource opportunity in Cyprus.
In West Africa, Chevron will acquire an established position in Equatorial Guinea, “with opportunities to continue to monetize resources through existing regional capacity,” he said.
The Equatorial Guinea assets lie between Chevron’s existing operations in Angola and Nigeria.
Holdings and history in Alaska Chevron has a history in Alaska, with experience in the Cook Inlet basin as well as on the North Slope.
In the 254,235 acre Prudhoe Bay unit, Chevron U.S.A. holds a 1.16%. interest, according to the Alaska Division of Oil and Gas.
The division reported in April that ConocoPhillips Alaska transferred a working interest of 4.9506% in 13 Kuparuk unit Beaufort Sea and North Slope leases (or parts of leases) to Chevron U.S.A., including Nuna leases ConocoPhillips recently acquired and absorbed into Kuparuk. A 4%-plus royalty interest was also transferred from ConocoPhillips to Chevron as part of the transaction, which ConocoPhillips said was part of a December sale to Chevron. Chevron holds a 4.95% working interest in the Kuparuk River unit.
Chevron also holds a 11.11% working interest in the Duck Island unit.
Chevron bought Unocal in 2005 and holds a 1.3561% interest in the Trans Alaska Pipeline System through its subsidiary Unocal Pipeline Co.
Chevron has unique access to valuable geological data regarding the Arctic National Wildlife Refuge.
Operator Chevron and BP were partners in the KIC No. 1 well, which was drilled in 1986 and remains the only well in the 1002 Area of ANWR.
Chevron is also part of a consortium of companies that have access to vintage 2D seismic data in ANWR, along with Anadarko, BP, ConocoPhillips, ExxonMobil, Hess, Marathon, Murphy, Oxy, Shell and Total.
Congress has mandated that two 400,000-acre lease sales be held in the 1002 Area by the end of 2024.
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