Chevron Corp.announced today that it has entered into a definitive agreement with Anadarko Petroleum Corp. (NYSE: APC) to acquire all of the outstanding shares of Anadarko in a stock and cash transaction valued at $33 billion, or $65 per share. Based on Chevron’s closing price on April 11, 2019, and under the terms of the agreement, Anadarko shareholders will receive 0.3869 shares of Chevron and $16.25 in cash for each Anadarko share. The total enterprise value of the transaction is $50 billion.
This may start a series of M&A deals. Proven reserves on Wall Street are cheaper than the cost of drilling for them.
A deal of this size will cause "The Wall Street Gang" to take a hard look at all of our Sweet 16 and Small-Cap Growth Portfolio companies. Why? ... because the "Gang" knows that Chevron did extensive due diligence on APC before making the deal. So... the "Gang", which is extremely lazy, now has a new yardstick to measure upstream companies with. This will draw a lot of attention to the oil & gas upstream companies. Our "Elite Eight" should draw the most attention.
Chevron is paying $65/share for APC and they are assuming net debt (total debt - current assets) of $25.6 Billion another $50/share for a total purchase price of $115/share.
Is that a reasonable price?
APC by the numbers:
EPS:
2018A = $2.26
2019E = $1.72
2020E = $2.62
Operating CFPS
2018A = $11.76
2019E = $12.52
2020E = $14.50
3Yr Ave = $12.93
So, Chevron is paying slightly over 8.9 X operating cash flow per share for APC.
Our Sweet 16 (a bunch of Prime Takeover Targets) is trading for less than 5X operating cash flow per share.
BIG DEAL: Chevron to acquire Anadarko
BIG DEAL: Chevron to acquire Anadarko
Last edited by dan_s on Fri Apr 12, 2019 5:56 pm, edited 1 time in total.
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: BIG DEAL: Chevron to acquire Anadarko
Notes from Seaport Global 4/12/2019
Basin consolidation is coming
■ Why it’s a good time to see consolidations happen? E&P companies between $12B-$15B in market cap are now trading at premiums
vs. small-cap group – compared to a 1.5x-2.0x discount a couple of years ago – which sets the ground for the large caps to leverage
their valuation advantage to acquire smaller operators.
■ What is incentive for the seller? Scale certainly matters in manufacturing mode. As smaller operators have a higher cost of capital and
lack of the capital/capability to optimally develop acreage, selling the company for a premium creates value for shareholders.
■ Who will be the buyer? Two consolidation scenarios seem reasonable: (1) small operators combine together to size up; (2) mid-size
operators ($12B-$15B market cap) light on core inventory acquire small operators to upgrade their portfolio. For the larger operators like
OXY, that have a deep inventory, they are unlikely to be the acquirer as the hurdle is too high to find a deal that is not dilutive to cash
flow/earnings. With compensation now more tied to cash flow, management has little incentive to make a dilutive deal happen.
■ How will the deal valuation look like? It’s unlikely that zero premium deals get done. Real synergies will be needed to justify a
transaction and price paid (e.g. a technology that the seller doesn’t have).
What is needed for E&P companies to regain investors’ interest?
■ Free cash flow and growth. The E&P industry as a whole didn’t deliver a compelling return on capital over the past few cycles, which
has driven investors away from the sector. This needs to change in order for investor sentiment to turn positive on the space. Fidelity
recently mentioned a new template for Energy – the 4 & 4 format – 4% growth + 4% dividend/buybacks.
■ Stick with top E&P names not only in the top quartile of the E&P space but also competitive with other sectors. For large
institutional investors, job risk exists if they underperform benchmarks (e.g. S&P 500). To attract investors, E&P companies need to be
better than the broad market on return metrics.
Basin consolidation is coming
■ Why it’s a good time to see consolidations happen? E&P companies between $12B-$15B in market cap are now trading at premiums
vs. small-cap group – compared to a 1.5x-2.0x discount a couple of years ago – which sets the ground for the large caps to leverage
their valuation advantage to acquire smaller operators.
■ What is incentive for the seller? Scale certainly matters in manufacturing mode. As smaller operators have a higher cost of capital and
lack of the capital/capability to optimally develop acreage, selling the company for a premium creates value for shareholders.
■ Who will be the buyer? Two consolidation scenarios seem reasonable: (1) small operators combine together to size up; (2) mid-size
operators ($12B-$15B market cap) light on core inventory acquire small operators to upgrade their portfolio. For the larger operators like
OXY, that have a deep inventory, they are unlikely to be the acquirer as the hurdle is too high to find a deal that is not dilutive to cash
flow/earnings. With compensation now more tied to cash flow, management has little incentive to make a dilutive deal happen.
■ How will the deal valuation look like? It’s unlikely that zero premium deals get done. Real synergies will be needed to justify a
transaction and price paid (e.g. a technology that the seller doesn’t have).
What is needed for E&P companies to regain investors’ interest?
■ Free cash flow and growth. The E&P industry as a whole didn’t deliver a compelling return on capital over the past few cycles, which
has driven investors away from the sector. This needs to change in order for investor sentiment to turn positive on the space. Fidelity
recently mentioned a new template for Energy – the 4 & 4 format – 4% growth + 4% dividend/buybacks.
■ Stick with top E&P names not only in the top quartile of the E&P space but also competitive with other sectors. For large
institutional investors, job risk exists if they underperform benchmarks (e.g. S&P 500). To attract investors, E&P companies need to be
better than the broad market on return metrics.
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: BIG DEAL: Chevron to acquire Anadarko
Bloomberg -- Chevron Corp.’s $33 billion bid for Anadarko Petroleum Corp. may presage a new Permian Basin buying spree, with Pioneer Natural Resources Co. and Concho Resources Inc. among the next prime targets.
Pioneer, Concho and Noble Energy Inc. surged Friday after Chevron unveiled plans to buy Anadarko, a deal that expands the supermajor’s presence in the Permian region, Gulf of Mexico and East Africa. The transaction vaults Chevron into the rarefied air of rivals Exxon Mobil Corp. and Royal Dutch Shell Plc, which in turn may be roused to make acquisitions of their own.
Occidental Petroleum Corp.(OXY), fresh off its own failed bid for Anadarko, may now find the tables have turned as its hefty footprint in the world’s biggest oil field attracts the attention of acquisitive rivals. Investment bank Tudor Pickering Holt & Co and BP Capital Fund Advisors LLC both cited Occidental as a potential target.
“From a big-picture perspective, the majors have really bought into shale, but from an asset perspective, the majors don’t necessarily have the right asset portfolios,” Tudor Pickering’s Matthew Portillo said by telephone. “We do think this is going to be the spark that really catalyzes a lot of M&A.”
For Exxon, buying Pioneer or Concho would help the oil giant plug a hole in its Permian portfolio, Portillo said. Shell also will feel pressure to buy more acreage in the prolific stretch of West Texas and New Mexico, possibly by acquiring smaller players like WPX Energy Inc. and Cimarex Energy Co., Portillo said. BP Plc may also embark on expansionist takeovers, he added.
Buying Neighbors
The peculiar nature of shale exploration is an impetus for acquisitions. Unlike in conventional oil fields, shale requires sideways drilling to access crude-soaked rocks, so the further a company can drill horizontally, the more oil it captures. In that context, buying neighboring drillers makes a lot of sense.
For Chevron, Anadarko presented an enticing target. In addition to vast deepwater holdings in the Gulf of Mexico and an ambitious liquefied gas development in Mozambique, the company controls Permian drilling rights across an area twice the size of Los Angeles. Multiple layers of oil-rich shale extend for more than 1.5 miles (2.4 kilometers) underground within that zone.
The most obvious target companies “are the ones that represent the same opportunity Anadarko presented to Chevron,” said Ben Cook, a portfolio manager at BP Capital in Dallas. “It becomes a game of matching up maps.”
What Bloomberg Intelligence Says
If Chevron’s acquisition of Anadarko Petroleum is the catalyst that kicks off the long-anticipated wave of consolidation within the independent energy sector, smaller producers could see their credit profiles improve. -- Spencer Cutter and Jaimin Patel, analystsClick here to view the piece
In addition to Pioneer and Concho, Cook highlighted EOG Resources Inc., Occidental and Parsley Energy Inc. as names that could fit the bill for supermajors on the prowl. Noble was also floated as a top-three candidate in a note by RBC Capital Markets.
Spokespeople for Exxon, BP, Shell, WPX, Cimarex, Parsley, Noble, Pioneer, EOG, Occidental and Concho declined to comment or didn’t immediately respond to requests.
“You see a deal like this and it does tend to kick off a wave of M&A activity,” Cook said. “This is yet another confirmation that shale development and the short-cycle barrel is increasingly attractive to the majors.”
Pioneer, Concho and Noble Energy Inc. surged Friday after Chevron unveiled plans to buy Anadarko, a deal that expands the supermajor’s presence in the Permian region, Gulf of Mexico and East Africa. The transaction vaults Chevron into the rarefied air of rivals Exxon Mobil Corp. and Royal Dutch Shell Plc, which in turn may be roused to make acquisitions of their own.
Occidental Petroleum Corp.(OXY), fresh off its own failed bid for Anadarko, may now find the tables have turned as its hefty footprint in the world’s biggest oil field attracts the attention of acquisitive rivals. Investment bank Tudor Pickering Holt & Co and BP Capital Fund Advisors LLC both cited Occidental as a potential target.
“From a big-picture perspective, the majors have really bought into shale, but from an asset perspective, the majors don’t necessarily have the right asset portfolios,” Tudor Pickering’s Matthew Portillo said by telephone. “We do think this is going to be the spark that really catalyzes a lot of M&A.”
For Exxon, buying Pioneer or Concho would help the oil giant plug a hole in its Permian portfolio, Portillo said. Shell also will feel pressure to buy more acreage in the prolific stretch of West Texas and New Mexico, possibly by acquiring smaller players like WPX Energy Inc. and Cimarex Energy Co., Portillo said. BP Plc may also embark on expansionist takeovers, he added.
Buying Neighbors
The peculiar nature of shale exploration is an impetus for acquisitions. Unlike in conventional oil fields, shale requires sideways drilling to access crude-soaked rocks, so the further a company can drill horizontally, the more oil it captures. In that context, buying neighboring drillers makes a lot of sense.
For Chevron, Anadarko presented an enticing target. In addition to vast deepwater holdings in the Gulf of Mexico and an ambitious liquefied gas development in Mozambique, the company controls Permian drilling rights across an area twice the size of Los Angeles. Multiple layers of oil-rich shale extend for more than 1.5 miles (2.4 kilometers) underground within that zone.
The most obvious target companies “are the ones that represent the same opportunity Anadarko presented to Chevron,” said Ben Cook, a portfolio manager at BP Capital in Dallas. “It becomes a game of matching up maps.”
What Bloomberg Intelligence Says
If Chevron’s acquisition of Anadarko Petroleum is the catalyst that kicks off the long-anticipated wave of consolidation within the independent energy sector, smaller producers could see their credit profiles improve. -- Spencer Cutter and Jaimin Patel, analystsClick here to view the piece
In addition to Pioneer and Concho, Cook highlighted EOG Resources Inc., Occidental and Parsley Energy Inc. as names that could fit the bill for supermajors on the prowl. Noble was also floated as a top-three candidate in a note by RBC Capital Markets.
Spokespeople for Exxon, BP, Shell, WPX, Cimarex, Parsley, Noble, Pioneer, EOG, Occidental and Concho declined to comment or didn’t immediately respond to requests.
“You see a deal like this and it does tend to kick off a wave of M&A activity,” Cook said. “This is yet another confirmation that shale development and the short-cycle barrel is increasingly attractive to the majors.”
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: BIG DEAL: Chevron to acquire Anadarko
Per CNBC:
Occidental bid more than $70 a share for Anadarko and is now considering options: Sources
Key Points
Occidental Petroleum bid more than $70 a share for Anadarko Petroleum in cash and stock, people familiar with the matter say.
The bid was higher in price and contained more cash than the Chevron’s announced offer, the people say.
The Occidental bid required a shareholder vote, according to sources.
There was another bid for Anadarko Petroleum, the oil and gas explorer that Chevron said it was buying for $65 a share in cash and stock.
Before Friday’s announcement of the deal, Occidental Petroleum had bid more than $70 a share for Anadarko in cash and stock, people familiar with the situation told CNBC,
but the company ultimately decided to go with Chevron.
In addition to being higher, the Occidental bid contained more cash than the Chevron offer and would have required a shareholder vote, the people said.
However, the people familiar said there were some structural issues with the Occidental bid with which Anadarko may not have been as comfortable.
Occidental is now considering its options, people familiar with the matter told CNBC, but it’s unclear if the company will launch a hostile bid for Anadarko.
The Chevron-Anadarko breakup fee is said to be 3% of the deal price, which is nearly $1 billion.
That transaction will expand the second biggest U.S. energy company’s operations in shale oil and gas production, offshore drilling and liquefied natural gas exports.
The deal also would be the 11th biggest in history for an energy and power company, according to Refinitiv.
Occidental bid more than $70 a share for Anadarko and is now considering options: Sources
Key Points
Occidental Petroleum bid more than $70 a share for Anadarko Petroleum in cash and stock, people familiar with the matter say.
The bid was higher in price and contained more cash than the Chevron’s announced offer, the people say.
The Occidental bid required a shareholder vote, according to sources.
There was another bid for Anadarko Petroleum, the oil and gas explorer that Chevron said it was buying for $65 a share in cash and stock.
Before Friday’s announcement of the deal, Occidental Petroleum had bid more than $70 a share for Anadarko in cash and stock, people familiar with the situation told CNBC,
but the company ultimately decided to go with Chevron.
In addition to being higher, the Occidental bid contained more cash than the Chevron offer and would have required a shareholder vote, the people said.
However, the people familiar said there were some structural issues with the Occidental bid with which Anadarko may not have been as comfortable.
Occidental is now considering its options, people familiar with the matter told CNBC, but it’s unclear if the company will launch a hostile bid for Anadarko.
The Chevron-Anadarko breakup fee is said to be 3% of the deal price, which is nearly $1 billion.
That transaction will expand the second biggest U.S. energy company’s operations in shale oil and gas production, offshore drilling and liquefied natural gas exports.
The deal also would be the 11th biggest in history for an energy and power company, according to Refinitiv.
Re: BIG DEAL: Chevron to acquire Anadarko
My guess is that OXY will avoid a bidding war with Chevron. There are plenty of other prime takeover targets if OXY wants to expand their Permian Basin inventory.
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group