Chevron Is Buying Anadarko Petroleum For $33 Billion

Data by YCharts

Oil and gas exploration and production sector-specific exchange traded funds led the charge on Friday after Chevron (NYSE: CVX) announced a $33 billion cash and stock deal to acquire Anadarko Petroleum (NYSE: APC).

It puts Chevron neck-and-neck with the oil and gas production of Exxon and Royal Dutch Shell Plc, both of which have dominated Big Oil over the past decade.

"Chevron now joins the ranks of the ultramajors", Roy Martin, an analyst at Wood Mackenzie Ltd, said in a note.

That is largely being driven by the energy powerhouse Saudi Arabia, which last month removed another 324,000 barrels of oil per day from the market.

Chevron expects the deal to add to free cash flow and earnings per share one year after closing, at US$60-a-barrel Brent.

"This transaction builds strength on strength for Chevron", said Chevron Chief Executive Mike Wirth. Chevron also expects shale to generate profits for its pipeline, trading and refining units.

Asked about his appetite for deals in February, Conoco CEO Ryan Lance said it would have to be an unusual opportunity for the company to consider an acquisition. At the same time, Chevron's stock was lower by more than 4 percent.

Last month, Chevron had already announced plans to significantly grow its production in the Permian, where the US supermajor has added nearly 7 billion barrels of resources and doubled its portfolio value over the past two years.

Shares of Anadarko jumped 32% at the opening bell Friday, while Chevron's stock fell 5.3%. Taking advantage of the significant value unlocked by the Anadarko buyout, Chevron intends to increase its annual share buyback program to $5 billion from $4 billion.

In that time, USA crude oil prices have risen 20 percent.

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The combined Chevron and Anadarko businesses will make up one of the largest operators in the US shale basins at a time when America pumps out more crude oil than Saudi Arabia and Russian Federation, the Wall Street Journal reports. The company is bringing industrial scale to shale drilling, once the domain of small, independent wildcatters.

Anadarko fracks for oil and gas in the Permian Basin, the most promising shale oilfield in the world, which straddles Texas and New Mexico.

Chevron's purchase of Anadarko at US$65 a share had competition from Occidental Petroleum, which bid $70 a share but whose offer was hindered by "structural issues", CNBC reported, adding that Occidental was considering its options.

With control of so much territory, Chevron will be able to set up multiple production hubs, another efficiency advantage.

Guyana could see oil exploration activity in the ultra-deepwater region picking up pace in the near future with United States oil giant Chevron set to buy Anadarko Petroleum Corp, which holds an exploration licence for the Roraima Block offshore Guyana. Occidental may turn its attention to other Permian major shale players now.

Boosts LNG Output: The Anadarko acquisition also gives Chevron greater exposure to the African LNG market through the former's $20 billion project in northern Mozambique.

Expenses from that project are expected to reach $4bn over several years. Anadarko builds one the largest liquid-natural gas-exporting facilities of the world in Mozambique.

The total enterprise value of the transaction is $50 billion.

"This deal seems flawless".

Oil prices have been on the rise as OPEC members cut production.

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