Chevron announced the $33 billion acquisition of Anadarako Petroleum

New York (AFP) - Chevron announced Friday it will acquire smaller US rival Anadarko for $33 billion in a deal that strengthens the oil giant’s exploration and production holdings in its home market.

The cash-and-stock transaction is centered on Anadarko’s properties in the Permian Basin in Texas and the Gulf of Mexico, two areas where Chevron is already a big player and where economies of scale can help drive value with suppliers and in key drilling and production operations.

The Permian is among the leading shale regions that have vaulted the United States back into the big leagues of global energy.

Anadarko also has a handful of overseas ventures, including a major liquefied natural gas project in Mozambique that Chevron said would help bolster one of its major global businesses.

Chevron’s purchase of Anadarko at $65 a share had competition from Occidental Petroleum, which bid $70 a share but whose offer was hindered by “structural issues,” CNBC reported, adding that Occidental was considering its options.

Occidental did not respond to queries from AFP.

Chevron Chief Executive Mike Wirth said the deal “builds strength on strength for Chevron.”

With the addition of the Anadarko acreage, Chevron will have a “75-mile (121 kilometer) wide highly contiguous corridor, where we can drill, develop, operate and build infrastructure, all with great efficiency,” Wirth said on a conference call with analysts.

The company plans to add rigs for the Anadarko acreage, but still estimated a $1 billion reduction of the combined capital spending of the two companies because of economies of scale, he added.

The oil giant will also “high grade” its portfolio and sell off some $15 billion to $20 billion of assets.

- Tiramisu of oil -

The advantages of scale in the Permian include having greater clout with drilling companies and other suppliers, not only in terms of setting pricing but in establishing a long-term development plan, said Kris Nicol, director of corporate research at Wood Mackenzie, a consultancy.

Chevron's purchase of Anadarko boosts its position in the Permian Basin, shown here in 2016

With control of so much territory, Chevron will be able to set up multiple production hubs, another efficiency advantage.

“You can be more forward-looking, which ultimately should be more cost-effective,” Nicol told AFP.

Nicol said these attributes are particularly useful in the Permian, which requires more drilling than other leading shale basins because it is larger and also because it is imbued with layers of hydrocarbon, piled one on top of each other. More wells are needed to tap these resources.

Other leading shale regions in North Dakota and other parts of Texas lack this feature, which Nicol likened to the Italian dessert tiramisu.

- Getting bigger -

For Chevron, the takeover of Anadarko marks its biggest deal since its purchase of Texaco, which closed in 2001 and vaults the company into the realm of “UltraMajors” as Wood Mackenzie put it, second only to Exxon Mobil in production.

In another big transaction, Chevron in 2005 bought Unocal for $18.3 billion after raising the price during a high-profile bidding war with China’s CNOOC that drew interest from lawmakers in Washington.

The acquisition is composed of 75 percent stock and 25 percent cash, with Anadarko shareholders receiving 0.39 shares of Chevron and $16.25 in cash for each Anadarko share held.

The deal is expected to close in the second half of 2019.

In 2018, Chevron had $42.4 billion in revenues and pumped 3.1 million barrels of oil equivalent per day, above the level of most members of the Organization of the Petroleum Exporting Countries.

Anadarko had $13.4 billion in revenues last year and pumped 666,000 barrels of oil equivalent per day.

Anadarko is perhaps best known for being a minority partner on BP’s ill-fated Macondo project in the Gulf of Mexico, the site of the worst offshore oil spill in US history in 2010 following a well explosion that killed 11 people.

Anadarko in October 2011 transferred its interest in Macondo to BP as part of a settlement that resolved claims between the two companies.

Anadarko shares surged 32.0 percent to $61.78, while Chevron fell 4.9 percent to $119.76.

Also notable were gains by other midsized oil companies such as Devon Energy, EOG Resources and Marathon Oil amid speculation the takeover could spur other deals.