Chevron said Monday that it has entered into an agreement to acquire Noble Energy, a large independent oil-and-gas producer, in a $5 billion all-stock transaction. Why it matters: It will expand Chevron’s footprint in the U.S. shale patch, where the company is competing with rival Exxon.
Based on Chevron’s closing price on July 17, 2020 and under the terms of the agreement, Noble Energy shareholders will receive 0.1191 shares of Chevron for each Noble Energy share. The total enterprise value, including debt, of the transaction is $13 billion.
The takeover is the industry’s first major deal since the coronavirus triggered a severe slump and the largest since Occidental Petroleum Corp. outbid Chevron to acquire Anadarko Petroleum Corp. for $37 billion last year.
The acquisition of Noble Energy provides Chevron with low-cost, proved reserves and attractive undeveloped resources that will enhance an already advantaged upstream portfolio. Noble Energy brings low-capital, cash-generating offshore assets in Israel, strengthening Chevron’s position in the Eastern Mediterranean.
The acquisition will give Chevron a bigger presence in the shale patches of Colorado as well as the Permian Basin, the top U.S. shale field. Chevron has been expanding there, and was under pressure to show how it planned to expand output when existing Permian assets are depleted.
“Our strong balance sheet and financial discipline gives us the flexibility to be a buyer of quality assets during these challenging times,” said Chevron Chairman and CEO Michael Wirth. “This is a cost-effective opportunity for Chevron to acquire additional proved reserves and resources. 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.”
“This combination is expected to unlock value for shareholders, generating anticipated annual run-rate cost synergies of approximately $300 million before tax, and it is expected to be accretive to free cash flow, earnings, and book returns one year after close,” Wirth concluded.
“The combination with Chevron is a compelling opportunity to join an admired global, diversified energy leader with a top-tier balance sheet and strong shareholder returns,” said David Stover, Noble Energy’s Chairman and CEO. “Over the last few years, we have made significant progress executing our strategic objectives, including driving capital efficiency gains onshore, advancing our offshore conventional gas developments and significantly reducing our cost structure. 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’s stock jumped by more than 9% in Monday’s premarket session to $10.55, in a 52-week range of $2.73 to $27.31. The company pays a cash dividend of $0.08 per share (0.83% yield).
Chevron’s shares traded down less than 0.5%, at $86.83 in a 52-week range of $51.60 to $127.00. Its consensus 12-month price target is $99.69, and the company pays a cash dividend of $5.16 (5.92% yield).
This acquisition looks capable of helping Chevron maintain that rich dividend and puts some pressure on rival Exxon Mobil Corp. pays a cash dividend of $3.48 (8.0% yield). Exxon’s shares traded down about 0.5% in Monday’s premarket.
The oil price crash has decimated shares of many energy companies, making them attractive targets for those that have weathered the downturn and have the resources to buy.
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