In the first major U.S. oil deal since the pandemic hit the industry, supermajor Chevron announced on Monday that it had entered into a definitive agreement to buy Houston-based Noble Energy in an all-stock transaction valued at US$5 billion.
Under the terms of the deal, Noble Energy shareholders will receive 0.1191 shares of Chevron for each Noble Energy share. The total enterprise value of the transaction is US$13 billion, including debt, Chevron said.
The rationale for the deal is a low-cost acquisition of quality Noble Energy proved reserves which will fit strategically into Chevron’s plans in the U.S. shale patch and abroad.
Chevron and Noble Energy’s boards have unanimously approved the deal, which is expected to close in Q4 2020, subject to shareholder approval of Noble Energy shareholders, regulatory approvals, and other customary closing conditions.
Last year, Chevron bid to buy Anadarko, but was outbid by Occidental in what analysts now see as an ill-timed decision for Oxy to pursue such a huge and leveraged transaction.
The Chevron-Noble deal is expected to boost Chevron’s portfolio of assets in the Permian, DJ, and Eagle Ford basins, as well as diversify Chevron’s portfolio with large-scale producing assets in the Eastern Mediterranean.
“Our strong balance sheet and financial discipline gives us the flexibility to be a buyer of quality assets during these challenging times,” Chevron’s chairman and CEO Michael Wirth said in a statement.
“This combination is expected to unlock value for shareholders, generating anticipated annual run-rate cost synergies of approximately $300 million before tax, and it is expected to be accretive to free cash flow, earnings, and book returns one year after close,” Wirth added.
The transaction announced yesterday was the first major deal since the oil price plunge in March which hit the U.S. shale patch.
Shale firms now have fewer financing options than they did in the 2015-2016 downturn. Thus could drive consolidation in the industry with some attractive M&A opportunities emerging, Robert Polk, principal analyst with Wood Mackenzie’s U.S. Corporate Research team, say in May.
This deal according to the experts will impact positively on Chevron’s portfolio if it is sealed.