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Chevron bets on Colorado, Eastern Mediterranean with $13B Noble Energy deal


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Chevron bets on Colorado, Eastern Mediterranean with $13B Noble Energy deal

Chevron Corp.'s $13 billion bid to buy Noble Energy Inc. is a pivotal opportunity to scale up the independent oil and gas producer's shale footprint in Colorado's DJ Basin and its deepwater Eastern Mediterranean assets, Chevron Chairman and CEO Michael Wirth said.

"This deal ticks all the boxes that we've consistently articulated as the kinds of things that we would be looking for," Wirth said during a July 20 conference call with analysts and investors about the all-stock transaction, worth $10.38 per share.

Noble's position in the DJ Basin "is a proven de-risked unconventional basin that ... gives us another piston in the unconventional engine," Wirth said.

The Leviathan gas project off Israel's coast has "the big capital spend behind it now" and complements Chevron's exploration opportunities offshore Egypt, he said.

The total enterprise value of the deal, including net debt and book value of noncontrolling interest, is $13 billion, according to a July 20 news release. Under the deal's terms, Noble shareholders will receive 0.1191 Chevron shares for each Noble share held. Noble shareholders will own about 3% of the combined company after deal closing, scheduled for the fourth quarter.

Noble's proved reserves as of Dec. 31, 2019, would add approximately 18% to Chevron's year-end 2019 proved oil and gas reserves and almost 7 billion barrels of risked resource.

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The deal agreement came more than a year after Occidental Petroleum Corp. won a high-stakes bidding war with the supermajor to take out Anadarko Petroleum Corp., but Chevron's Wirth said he sees no "potential interloper risk" with the new deal, and he expected the deal to close.

In a July 20 note to clients, analysts at Jefferies LLC called Noble "somewhat of a mini-Anadarko" given both companies' DJ, Permian Basin and international exposure. The analysts agreed with others at Mizuho Securities USA that the Israeli gas assets are particularly attractive.

"We believe the real opportunity for [Chevron] will be in leveraging the Eastern Mediterranean position longer-term, where additional value may be realized with investment in a European gas pipeline or with floating LNG export facilities," Mizuho told clients, noting that these assets could rake in about $900 million in 2021.

Despite a global gas glut that presents a tough commercial landscape, Noble's contracts with customers for its Israeli gas have "relatively high take-or-pay percentages," according to Chevron's Wirth, and the transition from coal to gas power generation will drive further off-take projects.

"When you've got a large, low-cost resource base like this, proximate to large economies, we will find ways to move the gas to market in a manner that's competitive," he said.

For Noble, which slashed spending and cut its dividend earlier this year in response to the COVID-19 pandemic and record low oil prices, the Chevron transaction "maintained the upside exposure and minimized any downside risk" among other strategic options, Chairman and CEO David Stover said.

As for any Noble assets that do not fit Chevron's portfolio in the long term, the supermajor is holding off on divestments for now.

"It's not a great market right now to be selling assets into, and so I don't think you'll see us rushing out to do anything until we feel like we've got a decent market for the prospective transactions," Wirth said.

Noble units were trading up 6.5% as of 10:00 a.m. ET, with Chevron shares down just over 2%.