The Second Time Around - Chevron's $13 Billion Noble Energy Deal Signals Return of Upstream M&A

On July 20, 2020, Chevron struck the first major energy sector deal since the onset of the pandemic, announcing a $13 billion agreement to acquire U.S. E&P Noble Energy. The transaction comes 15 months after the oil major bowed out of a bidding war with Occidental Petroleum to acquire Anadarko Petroleum, a landmark, $56 billion deal in which the winner may eventually end up as the loser after taking on massive debt. Oxy is just one example of how the sharp decline in oil demand and prices has ravaged producer cash flows and earnings, virtually freezing the M&A market. Despite widespread speculation that a resumption in deal activity would target the most distressed E&Ps, Chevron has broken the market wide open with a blockbuster deal for a premier E&P. The target this time, Noble Energy, has a portfolio very similar to that of Anadarko, and is being acquired at a small fraction of the cost. Today, we examine the strategies that drove this transaction, the impacts on buyer and seller, and the implications for the upstream M&A market going forward.

Earlier this week, in Stayin’ Alive, we looked at last year’s bidding war for Anadarko and its aftermath from Oxy’s perspective. Here’s a brief summary, this time highlighting Chevron’s motivations. On April 12, 2019, Chevron signed an agreement to acquire Anadarko for $50 billion: $25 billion in equity, $8 billion in cash, the assumption of $15 billion in net debt, and the $2 billion book value of non-consolidated interests. The targeted E&P was producing 701 Mboe/d (thousand barrels of oil equivalent per day) of oil and gas, 65% from U.S. onshore (the Permian’s Delaware Basin and the Denver-Julesburg, or DJ, and Powder River basins in the Rockies), 20% from the U.S. Gulf of Mexico, and 15% from international assets (Mozambique, Algeria, and Ghana). Anadarko also owned a 55% stake in midstream firm Western Midstream Partners (market cap, $4.4 billion).

For Chevron, the crown jewel in the portfolio was Anadarko’s 127 Mboe/d of current production and 240,000 net acres in the Permian, most of it adjacent to Chevron’s acreage in the Delaware Basin. Acquiring these assets would have vaulted Chevron into a position as the top Permian producer and accelerated its drive to nearly quadruple its output in the play to 900 Mboe/d by 2023. Another key target for Chevron was Anadarko’s stake in the major LNG development project offshore Mozambique, which would have complemented Chevron’s legacy Australian LNG assets.

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