In the biggest sale ever for shale oil and gas assets, Chevron Corp. of San Ramon, California, announced Friday that it agreed to buy Anadarko Petroleum Corp. of The Woodlands for $33 billion in cash and shares.
Analysts said the transaction is a sign that the majors are ready to make large acquisitions at a time of low valuations for oil and gas companies.
Wachtell, Lipton, Rosen & Katz and Vinson & Elkins advised Anadarko. Paul, Weiss, Rifkind, Wharton & Garrison counseled Chevron, which used Shearman & Sterling on antitrust elements of the deal.
Chairman Mark Kelly led the V&E team with assistance from partner Lande Spottswood. Partners Brian Bloom and David D’Alessandro and senior associate Steven Oyler advised on executive compensation/benefits issues.
V&E has done work for Anadarko before, including the sale of its remaining midstream assets to affiliate Western Gas Partners this past fall for $4 billion in cash and shares. Kelly also worked on a $1.25 billion investment grade offering of senior notes for the company.
Anadarko’s general counsel is Amanda M. McMillian, who replaced the retiring Robert K. Reeves as the company’s top legal officer at the end of last year. Before joining Anadarko in 2004, the Duke-trained lawyer practiced at Akin Gump Strauss Hauer & Feld.
Credit Suisse Securities (USA) is Chevron’s financial advisor. The team included Greg Weinberger in New York, Ricardo Concha in Houston and Jens Becker in New York.
Anadarko tapped Evercore, including Dan Ward and Alex Jais in New York, and Goldman Sachs & Co., with Suhail Sikhtian in Houston.
The offer includes 0.3869 per share of Chevron and $16.25 per share in cash for each Anadarko share. The consideration values Anadarko at $65 per share, a 39% premium over the company’s closing price on Thursday and a 12% premium over its 12-month trailing average.
The deal consists of 75% stock and 25% cash and gives Anadarko an enterprise value of $50 billion, including $15 billion in estimated debt.
Energy-focused investment bank Tudor, Pickering, Holt & Co. said the purchase price came at a 13% discount to its $75 per share net asset valuation for Anadarko and represents a 6.8 times multiple of enterprise value-to-EBITDA for next year.
The analysts expect other major oil companies to step into the M&A arena to lock up longer term shale opportunities, with large cap Permian peers Concho Resources Inc. and Pioneer Natural Resources on the top of their list as possible targets.
However, Michael Roomberg, a portfolio manager at Miller/Howard Investments, said the multiple was not “overly exciting” and that Chevron “is getting something of a steal” – and that suggests a wave of high dollar M&A may not be imminent.
The acquisition has to clear Anadarko shareholders and regulators and is expected to close in the second half of the year.
Chevron said the deal would enhance its portfolio in shale, deepwater and natural gas, deliver $2 billion in annual operating cost and capital synergies and add to its free cash flow and earnings one year after the deal closes.
The buyer also noted that Anadarko’s interest in Western Midstream Partners is well aligned with the companies’ combined upstream positions and would further enhance their economics and execution capabilities.
Chevron chairman and CEO Michael Wirth said in a statement that the combination strengthens its leading position in West Texas’ and New Mexico’s Permian Basin, builds on its deepwater Gulf of Mexico capabilities and will grow its liquefied natural gas, or LNG, business.
“It creates attractive growth opportunities in areas that play to Chevron’s operational strengths and underscores our commitment to short-cycle, higher-return investments,” he said.
Jefferies analyst Jason Gammel said the transaction strikes him as primarily a Permian expansion, with the potential to fill in the checkerboard patterns in the two companies’ acreage in the Delaware Basin to allow more efficient development through longer laterals.
“It does raise the question of how the APC [Anadarko] acreage is return-competitive with Chevron’s low/no royalty acreage, and it is incumbent on Chevron to address the return uplift,” he said.
Gammel added that Anadarko and Chevron have Gulf of Mexico overlap and the Mozambique LNG development in Area 1 is apparently near-ready to sanction, but he expects that these are “secondary considerations” in the transaction.
“This transaction does appear attractive on a cash flow basis and Anadarko’s asset portfolio has for a long time been considered appropriate for a major,” he said.
Chevron added in the statement that it’s boosting its share repurchase annual target by 25% to $5 billion.
Anadarko chairman and CEO Al Walker said the combination will form a stronger and better company with world-class assets, people and opportunities and that Chevron’s strategy, scale and operational capabilities “will further accelerate the value of Anadarko’s assets.”
According to Axios, the transaction would be the 11th largest energy sector merger of all time, quoting Refinitiv as its source, and that the combination would have higher cash flow and help Chevron produce more oil than competitor Exxon Mobil.