Chevron Acquisition of Noble Energy May Signal End of M&A Downturn

Chevron Corp. reported recently that it had arrived at a definitive agreement to acquire all outstanding shares of Noble Energy, Inc.

The all-stock transaction is valued at $5 billion, or $10.38 per share.

Assuming Chevron’s July 17th closing price and the terms of the agreement, Noble shareholders will get 0.1191 shares of Chevron for each Noble share, Chevron detailed in a written statement emailed to Rigzone. The transaction’s total enterprise value, including debt, is $13 billion.

“Our strong balance sheet and financial discipline gives us the flexibility to be a buyer of quality assets during these challenging times,” said Michael Wirth, Chevron’s chairman and CEO.

It’s the first major acquisition by Chevron since the company was outbid by Occidental Petroleum for Anadarko Petroleum in 2019. That $38 billion deal resulted in Occidental now heavily in debt. In contrast, Chevron received a $1 billion termination fee.

How the Deal Benefits Chevron

The San Ramon, California-headquartered Chevron says that the acquisition will add approximately 18% to its year-end 2019 proved oil and gas reserves at an average acquisition cost of less than $5 per barrel of oil equivalent (BOE) and nearly seven billion barrels of risked resources for less than $1.50 per BIOE. The figures are based on Noble’s proved reserves at the end of 2019, Chevron explained.

Chevron said that the acquisition bolsters its American onshore portfolio with assets in the DJ (Denver-Julesburg) and Permian basins. The company emphasized that the 92,000 acres in the Permian in western Texas and southeastern New Mexico are “largely contiguous and adjacent” to its existing assets.

Also, Chevron said that the deal includes an integrated midstream business and established position in the Eagle Ford in Texas.

Outside the United States, Chevron will add a large-scale, producing presence in the Eastern Mediterranean in Israel and West Africa assets in Equatorial Guinea.

“This is a cost-effective opportunity for Chevron to acquire additional proved reserves and resources,” added Wirth. “Noble Energy’s multi-asset, high-quality portfolio will enhance geographic diversity, increase capital flexibility and improve our ability to generate strong cash flow. These assets play to Chevron’s operational strengths, and the transaction underscores our commitment to capital discipline. We look forward to welcoming the Noble Energy team and shareholders to bring together the best of our organizations.”

Chevron says that its board as well as Noble’s have unanimously approved the transaction. The deal is subject to approval by Noble shareholders but is scheduled close in Q4 of this year. Upon completion of the deal, Noble shareholders will own approximately 3% of the combined company.

“Over the last few years, we have made significant progress executing our strategic objectives, including driving capital efficiency gains onshore, advancing our onshore conventional gas developments and significantly reducing our cost structure,” remarked David Stover, Noble’s chairman and CEO. “As we looked to build on this positive momentum, the Noble Energy Board of Directors and management team conducted a thorough process and concluded that this transaction is the best way to maximize value for all Noble Energy shareholders. We look forward to bringing together our highly complementary cultures and teams to realize the long-term value and benefits that this combination will deliver.”

Noble Struggled in the Pandemic

Noble has fought to turn a profit with oil prices at around $40 a barrel. The price has recovered a bit in recent months; however, the COVID-19 pandemic’s continued strength and the recent surge of infections and hospitalizations in Texas and other states have made some executives believe the price of oil may not climb much more in the near future.

The coronavirus crisis saw fuel demand evaporate and left many energy companies without the chance to drill their way out of debt. But those companies may now be more willing to consider deals using the Chevron offer as a measuring stick.

Other oil companies that have suggested an interest in bargain reserves and have the financial clout to buy, include ConocoPhillips, Exxon Mobil Corp, and Total SA.

This May Be the Beginning of Oil Industry Consolidation

Many experts see the Chevron-Noble deal as the start of a sweeping consolidation in the U.S. oil industry.

While not a blockbuster transaction, the Chevron-Noble deal could show a measure of confidence on the part of industry executives who are ready to acquire smaller companies in the hope of a imminent recovery.