CHEVRON has entered into a definitive agreement to acquire independent energy company Noble Energy for an overall price of US$13bn, in the biggest oil and gas deal since the coronavirus pandemic.
The overall transaction cost includes US$5bn for Noble’s outstanding shares (US$10.38 per share) – ie those owned by its shareholders – Noble’s net debt, and the book value of Noble’s non-controlling interest. Noble shareholders will receive 0.1191 shares of Chevron for each share of Noble. Following the transaction, Noble shareholders will own about 3% of the combined company.
The deal offers a strong strategic fit for Chevron. The company will enhance its portfolio in US onshore and internationally. In the US, Chevron is acquiring assets in the DJ Basin; in the Delaware Basin, part of the larger Permian Basin; and other operations. The DJ Basin assets, along with the 92,000 acres (372.3 km2) of the Permian Basin (contiguous and adjacent with Chevron’s existing assets), are expected to further enhance Chevron’s already leading US shale position.
International assets Chevron will acquire include Eastern Mediterranean operations, among which is Noble’s Leviathan, the largest energy project in history of Israel. Leviathan holds 22trn ft3 of recoverable natural gas and has a total production capacity of 1.2bn ft3 of natural gas per day. It delivered first gas to the Israeli domestic market in December 2019, and exports to Egypt and Jordan followed in January 2020. The operation more than doubled the quantity of natural gas flowing to the Israeli economy.
The acquisition of low-capital, cash-generating offshore assets in Israel strengthens Chevron’s position in the Eastern Mediterranean.
According to the Financial Times, the deal significantly expands Chevron’s position in the eastern Mediterranean where several countries are “racing to develop the region’s huge gas reserves for export”. The report adds that this deal also gives Israel’s energy sector the “supermajor investor” with “political clout” that the Government has wanted since Noble began finding huge offshore reserves more than 20 years ago.
For Chevron, the acquisition of Noble provides it with low-cost, proved reserves, and attractive undeveloped resources that will enhance an already-advantaged upstream portfolio. Based on Noble’s proved reserves at the end of 2019, the acquisition will add about 18% to Chevron’s 2019 year-end proved oil and gas reserves. This is at an average acquisition cost of less than US$5/boe, and almost 7bn bbl of risked resources for less than US$1.50/boe. At the end of 2019, Chevron’s resource base included 11.4bn bbl of net proved oil-equivalent reserves.
Once the transaction closes, it is expected to achieve operating cost savings of US$300m before-tax, within a year of closing.
The transaction is expected to close in Q4 of 2020.
Michael Wirth, Chairman and CEO of Chevron, said: “This is a cost-effective opportunity for Chevron to acquire additional proved reserves and resources. Noble Energy’s multi-asset, high-quality portfolio will enhance geographic diversity, increase capital flexibility, and improve our ability to generate strong cash flow. These assets play to Chevron’s operational strengths, and the transaction underscores our commitment to capital discipline. We look forward to welcoming the Noble Energy team and shareholders to bring together the best of our organisations.”
The Financial Times says that this recent deal could trigger a string of others in the oil sector as “deep-pocketed” groups such as Chevron and ExxonMobil, lead a wave of consolidation across the “heavily indebted US shale patch”. In May, Wirth told the Financial Times that in the wake of the oil price crash Chevron was open to acquisitions, saying that the company would be “alert to opportunities” that had emerged but would also be “patient and prudent”.
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