BURBANK, CALIFORNIA – MAY 22: The Chevron logo is displayed at a Chevron gas station on May 22, 2023 … [+]
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May 22, 2023 Chevron
CVX
announced that it has entered into a definitive agreement with PDC Energy, Inc. (NASDAQ: PDCE). Chevron will acquire all of PDC’s outstanding shares in an all-stock transaction valued at $6.3 billion, or $72 per share. The acquisition is expected to close in the second half of 2023.
PDC Energy is an independent oil and gas company operating in the Rocky Mountains and Permian Basin. The company has a strong balance sheet and a history of generating strong cash flows.
Chevron is one of the world’s largest integrated super-large energy companies. The company operates in more than 180 countries and produces oil and natural gas, refined products, chemicals and other energy-related products.
The acquisition of PDC Energy is a strategic move for Chevron. The deal will give Chevron access to PDC Energy’s assets in the Rockies and Permian Basin, two of the most prolific oil and gas producing areas in the United States.
Chevron expects the transaction to be accretive to all key financial measures within the first year after closing and to add approximately $1 billion in annual free cash flow at $70 per barrel Brent and $3.50 per Mcf Henry Hub.
Recall that in 2019, Chevron tried to acquire Anadarko in the sixth largest oil and gas deal in history. The deal would give Anadarko $33 billion and assume $17 billion in Anadarko debt at a total cost to Chevron of $50 billion.
Occidental then stepped in to bid, eventually offering to pay 78% in cash and 22% in stock in a deal valued at $57 billion. That price would destroy the cost synergies that Chevron was targeting with its original bid, so I wrote the article outlines why Chevron should withdraw from the deal. They eventually did, collecting a $1 billion breakup fee from Anadarko in the process.
Occidental Anadarko accepted the offer, and the two companies’ stock prices have since diverged. According to the data obtained from the market data provider FactSet, since the beginning of 2019, Chevron has a total return (including dividends) of 74%. Occidental’s performance over this time frame represents a total return of 7%. This is a testament to Chevron’s financial discipline.
Looking even further, Chevron is by far the best-performing supermajor of this century. Again, according to FactSet data, the total returns of major oil and gas companies this century are:
- Chevron: +774%
- ExxonMobil
XOM
: +446% - Shell: +150%
- TK: +75%
Each of these companies (except Chevron) had major financial problems this century. The 2010 BP Deepwater Horizon disaster is the most significant (and costly) event of the three, but both ExxonMobil and Shell made major decisions they regret in hindsight.
Acquiring PDC looks like another smart move for Chevron. With this deal, Chevron will increase its proved reserves by 10% at a purchase price below $7 per barrel of oil equivalent (BOE). The company is also adding 275,000 net acres adjacent to existing Chevron operations in the DG Basin, which add more than 1 billion BOE of proven reserves in highly economic locations. Chevron is also adding 25,000 net acres in the Permian Basin, which will be integrated into Chevron’s existing capital-efficient development operations.
