Mikaila Adams
Editor-News
The pursuit of Anadarko Petroleum Corp. ramped up in late April as the company resumed negotiations with Occidental Petroleum Corp. On Apr. 30, Oxy reported Berkshire Hathaway’s commitment of $10 billion should the deal be accepted. The proposal, made public by Oxy in a letter to Anadarko’s board Apr. 24, outlines a cash and stock transaction of $76/share, valued at $57 billion, including the assumption of net debt and book value of noncontrolling interest. The company said its proposal represents a premium of 20% to the value of Anadarko’s pending transaction as of Apr. 23, noting Chevron Corp.’s $65/share transaction (OGJ Online, Apr. 12, 2019).
Under the offer Anadarko shareholders will receive 0.6094 of a share of Oxy and $38 in cash for each Anadarko share implying a transaction structure of 50% stock and 50% cash. Oxy notes $3.5 billion in synergies ($2 billion opex and $1.5 billion capex) compared to Chevron’s offer of 0.3869 of a share of Chevron and $16.25 in cash with a 75% equity and 25% cash split and $2 billion in expected synergies.
An Oxy-Anadarko merger would create a $100+ billion combine with a “highly complementary asset portfolio” and production over 1.4 MMboe/d, positioned to leverage Oxy’s operational and technical expertise, the company said in a press note. The proposed transaction would enhance Oxy’s position as the largest producer in the Permian basin with 533,000 boe/d of production, the company said, and would give it “ExxonMobil or Chevron-like Permian scale and set them up to join the million barrels of oil equivalent per day Permian club in the late 2020s,” according to Zoe Sutherland, corporate analyst at Wood Mackenzie.
Sutherland said the deal “highlights that diversity is still valued by US independents,” and would mark Oxy’s entry into deepwater Gulf of Mexico and LNG, but that financially, the deal would be a stretch. “Its gearing ratio at the end of the fourth quarter was 25%. A potential transaction would materially increase the company’s leverage ratios and stretch its balance sheet.”
Making the case for Oxy, its president and chief executive officer, Vicki Hollub, told David Faber on CNBC’s “Squawk Box” Apr. 24 that the company is “the right acquirer for Anadarko Petroleum because we can get the most out of the shale.” What hasn’t been talked about much, she said, is the upside of the shale development. “Seventy-five percent of the value of Anadarko is in the shale. And we’re the best company to develop the shale. We have a proven track record in the Permian. We’re, right now, the best operator in the Permian.”
Continuing, Hollub emphasized the company’s enhanced oil recovery operations. “We have the ability to take enhanced oil recovery and apply it to the shale. There’s no company that can do that today like we can.”
Hollub said Oxy first approached Anadarko about a deal in July 2017, telling Faber that no other opportunity has presented the same upside potential.
Noting the more than 10,000 wells that could be drilled, Hollob explained: “When you look at the fact that in the Delaware basin, our performance, our wells perform about 74% better than Anadarko’s, and we have lower cost development on both the drilling and completion execution and operations. So, if you take that and you apply that to 10,000 wells, that’s a huge upside.”
Competing bids such as these are not typical, noted Biraj Borkhataria, analyst at RBC Capital Markets in a note Apr. 24.
“We think the strategic rationale between Chevron and Anadarko makes sense, while we also think Chevron is likely the more natural owner for a greenfield LNG development vs. Occidental. Based on the relative valuations between Super-Majors and US E&Ps, we think it makes sense for companies like Chevron to use equity to fund deals such as this.
“However, the competing bid situation does raise the question as to whether Chevron may have to raise its current offer,” he said.
If Anadarko deems Oxy’s bid to be superior to Chevron’s, a 4-day window would be extended for Chevron to respond. Neither a determination nor a response from Chevron had come as of this writing.
