Chevron, under pressure to expand output before existing Permian production tails off, last year tried to double down on its bet on surging shale output by bidding for Anadarko Petroleum Corp, but was outmaneuvered by Occidental Petroleum Corp’s higher offer
Chevron Corp said on Monday it would buy Noble Energy Inc for about $5 billion, in the biggest US energy deal since the coronavirus crisis crushed global demand for oil and sent crude prices to historic lows.
Noble's assets would expand Chevron's shale presence in the DJ Basin of Colorado and the Permian Basin across West Texas and New Mexico - where margins and drilling have been decimated by the collapse in prices this year.
Chevron, under pressure to expand output before existing Permian production tails off, last year tried to double down on its bet on surging shale output by bidding for Anadarko Petroleum Corp, but was outmaneuvered by Occidental Petroleum Corp's higher offer.
"(The Noble) deal ticks all the boxes that we've consistently articulated as the kinds of things that we would be looking for," Chief Executive Officer Michael Wirth said.
The deal will also bring Noble's flagship Leviathan field, the largest natural gas field in the eastern Mediterranean, into Chevron's fold.
Oil prices plunged to historic lows, falling below $0, in April as the coronavirus crisis halted travel and weighed on energy demand. While prices have recovered, they remain depressed, making assets cheaper. Just seven months ago, Noble had a market capitalization of about $12 billion.
Chevron has been widely seen as the flag bearer of financial discipline in the industry and was among the first to make significant budget cuts as oil demand plummeted. It pocketed a $1 billion break-up fee after the Anadarko deal fell through.
Shares of Noble were up about 9 percent at $10.52, after falling more than 60 percent this year through Friday's close. Chevron was broadly flat.
The offer values Noble at $10.38 a share, a 7.5 percent premium to Noble's Friday close. Including the company's massive debt pile, the deal is worth roughly $13 billion.
"This is one big show stopper for significant increase in corporate M&A activity in the US onshore during this downturn," Artem Abramov, head of Shale Research at Rystad Energy, said.
Noble shareholders will own about 3 percent of the combined company, after the deal closes, expected in the fourth quarter.
The deal will help save about $300 million on an annual run-rate basis and add to free cash flow as well as earnings per share one year after closing, if global oil prices LCOc1 stay at $40, Chevron said.