Chevron opts to buy Anadarko Petroleum for $33B

Chevron's Big Foot deepwater project in the Gulf of Mexico achieved first oil last year

Oil major Chevron Corp's $33 billion deal on Friday to acquire Anadarko Petroleum Corp has some investors and industry executives asking whether it is time for other USA shale oil and gas producers to consider selling themselves.

Chevron is buying Anadarko Petroleum for $33 billion, energizing its oil and gas drilling capabilities in Texas and the Gulf of Mexico while vaulting itself into a new league.

Anadarko has always been speculated about as a takeover target for the world's largest oil companies, offering a suite of assets including a massive LNG facility in Mozambique that is racing against an Exxon project to be the first operating in the country.

Until the transaction closes, it's business as usual, and both Chevron and Anadarko will operate as separate companies.

It is the oil industry's largest deal since Royal Dutch Shell bought BG Group in 2016, and it sparked speculation that other shale producers are in play.

Booming production in that region, powered by a revolution in technology that opened access to shale and other difficult-to-access formations, has turned the US into an oil-exporting nation. It plans to sell some $15 billion in assets over time to offset the Anadarko deal. The average premium in such transactions was 11 per cent a year ago and 22 per cent in 2017, according to data compiled by Bloomberg.

Anadarko shares surged 32.0 per cent to US$61.78, while Chevron fell 4.9 per cent to US$119.76.

"Consolidation in deep water and the shales makes complete industrial sense", Christyan Malek, head of EMEA oil and gas research at JPMorgan, said by email. "It gives the combined entity the ability to high-grade its assets and focus on where the best cash returns are".

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Chevron said the deal will create annual synergy savings of £1.5billion.

Anadarko Petroleum (NYSE:APC) was downgraded by research analysts at Mitsubishi UFJ Financial Group from an "overweight" rating to a "neutral" rating in a report released on Friday, The Fly reports.

It comes after the firm said past year it is seeking to sell all of its Central North Sea assets as it refocuses on the U.S. shale market.

Occidental Petroleum has tried to buy the company and even outbid Chevron as price per share, but their offer contained more cash, which would have required a shareholder vote, so Anadarko sticked with Chevron's offer eventually. Oil executives and bankers had in the past speculated that Shell may buy Anadarko, because they have adjacent acreage. The total enterprise value of the transaction is 50 billion dollars.

The site Offshore Technology's global rank puts Chevron as the 7th largest oil-and-gas company by revenue, with Chinese Sinopec leading and Shell coming as second. As a group, equities analysts expect that Anadarko Petroleum will post 1.66 EPS for the current fiscal year.

The company plans to add rigs for the Anadarko acreage, but still estimated a US$1 billion reduction of the combined capital spending of the two companies because of economies of scale, he added.

The deal has been approved by both companies' boards and is expected to be finalized later this year.

Evercore and Goldman Sachs are financial advisers to Anadarko, while Wachtell, Lipton, Rosen & Katz and Vinson & Elkins LLP are its legal advisers.

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