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Occidental Petroleum counters Chevron with new $57 billion bid for Anadarko

Highlights

Bidding war focused on Anadarko's Permian Basin assets

Both proposed deals said to offer synergies

London — A bidding war between Occidental Petroleum and Chevron to buy rival Anadarko could be the first sign that a wave of consolidation is going to sweep over oil and gas producers in the Permian Basin.

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Houston-based Occidental Petroleum made a new $57 billion offer for Anadarko Wednesday.

Occidental said that if Anadarko accepts its bid, "The combined company will be uniquely positioned to leverage Occidental's demonstrated operational and technical expertise, producing greater anticipated synergies than Anadarko's pending transaction."

Analysts have portrayed the planned purchase by Chevron as driven by possible synergies in upstream production in the US, both onshore and offshore, as California-based Chevron retrenches to home turf. Any deal has implications around the world, however, including for Anadarko's LNG development plans offshore Mozambique.

The latest bid, at $76/share, carries the same price tag as a previous offer by Occidental on April 11, but increases the proportion of cash Occidental is prepared to pay, from 40% to 50%.

"The 50-50 cash and stock transaction is valued at $57 billion, based on Occidental's closing price on April 23, 2019, including the assumption of net debt and book value of non-controlling interest," Occidental said in a statement.

Chevron's bid, accepted by Anadarko on April 12, would put the California-based major within touching distance of ExxonMobil on metrics such as upstream production volumes.

In a statement Wednesday, Anadarko acknowledged it had received Occidental's bid and said its board of directors would review the proposal to determine if it is in the best interest of the its stockholders.

"The Anadarko board has not made any determination as to whether Occidental's proposal constitutes, or could reasonably be expected to result in, a superior proposal under the terms of the Chevron merger agreement," the statement said.

PERMIAN SYNERGIES DETAILED

In a conference call with analysts Wednesday, Oxy's CEO Vicki Hollub said the proposed acquisition would create greater synergies than the proposed Chevron deal, particularly in the Permian and other US oil and gas basins.

The acquisition would extend Oxy's current position as the largest producer in the Permian with a combined net 533,000 barrels of oil equivalent per day of production, she said.

"Occidental is known for being a leader in Permian shale and [enhanced oil recovery] as well as internationally," she said. "In combination with Anadarko, we will also be the number one producer in the DJ Basin, the number one producer in the Uinta Basin, and the number one independent producer in Oman."

In addition, the deal would create one of the biggest oil and gas producers in the Gulf of Mexico as well as enhancing Oxy's existing businesses in chemicals and the midstream and internationally in Oman, the UAE and Colombia.

Post-merger, 60% of the combined company's total production would be oil. Oxy expects the combined company to produce about 1.4 million boe/d with a relatively even geographic split among the Permian, other US regions and international assets, Hollub said.

Comparing the proposed Oxy/Anadarko merger with the earlier announced Chevron deal in terms of production-related synergies, S&P Global Platts Analytics found that both proposed deals have aspects to recommend them.

Though Oxy is a pioneer in EOR in the Permian, they produce roughly the same volume of shale oil as Chevron, according to Platts Analytics production data. In terms of the respective deals creating synergies by combining acreage, contiguous acreage benefits look roughly the same between the two, according to Platts Analytics.

A TALE OF TWO MERGER OFFERS

While both Oxy and Chevron are strong Permian players, Oxy is the leading producer in the use of CO2 floods in the basin. However, according to Platts Analytics, there is not much, if any, synergies between the C02 floods and Anadarko acreage in the basin, which is primarily shale.

When it comes to the Gulf of Mexico, Platts Analytics notes that Chevron is stronger than Oxy and therefore would have more synergies with Anadarko.

The question of whether Oxy or Chevron would ultimately win the bidding war for Anadarko is still very much up in the air, according to analysts familiar with the companies.

"The fact that there is a bidding war, this is unheard of in this industry. We are in uncharted waters," Raymond James analyst Pavel Molchanov said in an interview Wednesday. He pointed out that Anadarko already has rebuffed Oxy's earlier bid, even though the Chevron deal it accepted was less generous.

"That fact that Anadarko chose Chevron's bid indicates that it was not purely a matter of who's offering more money. There were some intangible factors at work, Molchanov said.

However, KeyBanc Capital Markets analyst Leo Mariani said Oxy's higher bid for Anadarko, which offers a premium of about 20% to Chevron's bid, likely would prove the deciding factor.

"This is a significant premium to what Chevron offered. The best interests of shareholders would be to take the much higher bid," Mariani said in an interview.

-- Nick Coleman, Jim Magill and Matt Andre, newsdesk@spglobal.com

-- Edited by James Leech, newsdesk@spglobal.com

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