Chevron to buy Anadarko for $33 billion in shale push

Chevron Corp unveiled a $33 billion takeover of Anadarko Petroleum Corp on Friday, bolstering its position in shale oil and liquid natural gas production with the biggest industry merger since Royal Dutch Shell bought BG Group in 2016.

With oil prices surging this year, Chevron and larger rival Exxon Mobil have been doubling down on investments in the United States’ Permian basin, one of the main centers of a boom in shale oil exploration.

Chevron said the deal to buy Anadarko, one of the biggest remaining U.S. independent producers, would give the combined company a 75-mile-wide corridor across the Permian’s Delaware basin as well as Anadarko’s Mozambique LNG project, part of one of the industry’s largest planned current investments.

Shares in Chevron, however, fell 4 percent in trading before the bell on Friday as investors weighed the cost of the deal, which includes taking on $15 billion of Anadarko’s debt.

“This seems a big bet on shale and on oil prices remaining high. That seems a big ask if you think that renewables are set to comprise an increasing bigger part of the energy mix,” said CMC Markets analyst Michael Hewson.

“It’s a risky bet for Chevron given that they and Exxon are lagging (European majors) when it comes to renewables.”

Shares in Anadarko surged 33 percent, reflecting the 39 percent premium offered by Chevron compared to Thursday’s closing market price. The $65 per share offer was structured as 75 percent stock and 25 percent cash.

Producers in the Permian basin pump around 4 million barrels per day (mbd) and IHS Markit expects it to hit 5.4 mbd in 2023, more than the total production of any OPEC country other than Saudi Arabia.

Last month, Chevron said it expects shale production from the basin to reach 600,000 barrels per day (bpd) by the end of next year.

The company said the deal would add to its free cash flow and profit one year after closing, if Brent crude, currently around $70, holds above $60 per barrel.

Chevron also plans to raise annual share buybacks to $5 billion from $4 billion when the deal closes and to sell $15 billion to $20 billion of assets between 2020 and 2022.

The enterprise value of deal is $50 billion.

Credit Suisse Securities (USA) LLC is Chevron’s financial adviser, while Paul, Weiss, Rifkind, Wharton & Garrison LLP is its legal adviser.

Evercore and Goldman Sachs are financial advisers to Anadarko, while Wachtell, Lipton, Rosen & Katz and Vinson & Elkins LLP are its legal advisers.