Occidental Petroleum Corp. has set forth terms of a deal to acquire Anadarko Petroleum Corp. that it calls “superior” to the recently-accepted proposal by Chevron Corp.
In its letter delivered to the board of Anadarko Apr. 24, Occidental outlined a cash and stock transaction of $76.00 per share, valued at $57 billion, including the assumption of net debt and book value of non-controlling interest. The company said its proposal represents a premium of 20% to the value of Anadarko's pending transaction as of April 23, noting Chevron’s $65 per share transaction (OGJ Online, Apr. 12, 2019).
Under the offer Anadarko shareholders will receive 0.6094 shares of OXY and $38 in cash for each Anadarko share implying a transaction structure of 50% stock and 50% cash. Occidental notes $3.5 billion in synergies ($2 billion opex and $1.5 billion capex) compared to Chevron’s offer of 0.3869 shares of Chevron and $16.25 in cash with a 75% equity and 25% cash split and $2 billion in expected synergies.
An Occidental-Anadarko merger would create a $100+ billion combine with a “highly complementary asset portfolio” and production over 1.4 MMboe/d, positioned to leverage Occidental's operational and technical expertise, the company said in a press note.
Shale development
Notably, theproposed transaction would enhance Occidental's position as the largest producer in the Permian with 533,000 boe/d of production.
“We are the right acquirer for Anadarko Petroleum because we can get the most out of the shale," Vicki Hollub, Occidental president and chief executive officer told David Faber on CNBC’s “Squawk Box” Apr. 24. What hasn't been talked about much, she said, is the upside of the shale development. "Seventy-five percent of the value of Anadarko is in the shale. And we’re the best company to develop the shale. We have a proven track record in the Permian. We’re, right now, the best operator in the Permian.”
Continuing on the topic, Hollub emphasized the company’s enhanced oil recovery operations. “We have the ability to take enhanced oil recovery and apply it to the shale. There’s no company that can do that today like we can.”
Hollub said Occidental first approached Anadarko about a deal in July 2017, telling Faber that no other opportunity has presented the same upside potential.
Noting the more than 10,000 wells that could be drilled, Hollob explained: “When you look at the fact that in the Delaware Basin, our performance, our wells perform about 74% better than Anadarko’s, and we have lower cost development on both the drilling and completion execution and operations. So, if you take that and you apply that to 10,000 wells, that’s a huge upside.”
Competing bids such as these are not typical, noted Biraj Borkhataria, analyst at RBC Capital Markets in a note Apr. 24.
“We think the strategic rationale between Chevron and Anadarko makes sense, while we also think Chevron is likely the more natural owner for a greenfield LNG development versus Occidental. Based on the relative valuations between Super-Majors and US E&Ps, we think it makes sense for companies like Chevron to use equity to fund deals such as this.
“However, the competing bid situation does raise the question as to whether Chevron may have to raise its current offer,” he said.
Contact Mikaila Adams at [email protected].