Chevron Corporation has entered into an agreement to acquire Noble Energy, Inc. in an all-stock transaction valued at US$5 billion, or $10.38 per share.
Based on Chevron’s closing price on 17 July 2020 and under the terms of the agreement, Noble Energy shareholders will receive 0.1191 shares of Chevron for each Noble Energy share. The total enterprise value, including debt, of the transaction is US$13 billion.
In a statement, Chevron outlined that the acquisition of Noble Energy provides them with ‘low-cost, proved reserves and attractive undeveloped resources that will enhance an already advantaged upstream portfolio’.
The company noted that Noble Energy brings low-capital, cash-generating offshore assets in Israel, strengthening Chevron’s position in the Eastern Mediterranean.
Additionally, Noble Energy enhances Chevron’s leading U.S. unconventional position with de-risked acreage in the DJ Basin and 92,000 largely contiguous and adjacent acres in the Permian Basin.
Chevron Chairman and CEO Michael Wirth, said the company’s strong balance sheet and financial discipline gives it the flexibility to be a buyer of quality assets during these challenging times.
“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.”
“This combination is expected to unlock value for shareholders, generating anticipated annual run-rate cost synergies of approximately US$300 million before tax, and it is expected to be accretive to free cash flow, earnings, and book returns one year after close,” Wirth concluded.
Noble Energy’s Chairman and CEO, David Stover, added that the combination with Chevron is a compelling opportunity to join an admired global, diversified energy leader with a top-tier balance sheet and strong shareholder returns.
“Over the last few years, we have made significant progress executing our strategic objectives, including driving capital efficiency gains onshore, advancing our offshore conventional gas developments and significantly reducing our cost structure. As we looked to build on this positive momentum, the Noble Energy Board of Directors and management team conducted a thorough process and concluded that this transaction is the best way to maximise value for all Noble Energy shareholders. We look forward to bringing together our highly complementary cultures and teams to realise the long-term value and benefits that this combination will deliver,” Mr Stover said.
The acquisition consideration is structured with 100 per cent stock utilising Chevron’s attractive equity currency while maintaining a strong balance sheet. In aggregate, upon closing of the transaction, Chevron will issue approximately 58 million shares of stock. Total enterprise value of US$13 billion includes net debt and book value of non-controlling interest.
The transaction has been unanimously approved by the Boards of Directors of both companies and is expected to close in the fourth quarter of 2020. The acquisition is subject to Noble Energy shareholder approval. It is also subject to regulatory approvals and other customary closing conditions.
The transaction price represents a premium of nearly 12 per cent on a 10-day average based on closing stock prices on July 17, 2020. Following closing of the transaction, Noble Energy shareholders will own approximately 3 per cent of the combined company.
Adrian Lara, Senior Oil and Gas Analyst at GlobalData said since the crash of oil price and demand in March 2020, there has been an increasing expectation for mergers and acquisition (M&A) activity to show existing opportunities despite the depressed economic cycle.
“Chevron’s US$13 billion acquisition of Noble Energy, including debt, is indeed the largest in 2020 and has an international diversification component, in both resource type and geography, which confirms that, besides healthy balance sheets, the most resilient companies during the pandemic have shown flexibility thanks to diversified portfolios. It signals the optimal future strategy for major oil and gas companies.”
“For this particular transaction, it is really the Eastern Mediterranean assets that are the interesting bet in Chevron’s longer-term plans. These fields are expected to benefit from increasing natural gas demand in the region and ultimately LNG demand worldwide. Obviously, at the moment, consumption of natural gas has been depressed due to the current economic crisis, but there is low uncertainty on the future role of natural gas as a primary source of energy and its increasing demand. From this perspective, these fields are a good portfolio addition.”
“Furthermore, for a company such as Chevron, it is in its nature to manage giant projects such as the Leviathan gas field in Israel. Phase 1A of the field alone can reach 1.2 bcfd of peak capacity and for subsequent phases a FLNG facility has been considered for optimising export volumes. A company such as Chevron can definitely accelerate these type of multi-phase developments if needed.”
“With respect to Noble Energy’s US unconventional positions in the Permian and DJ Basin plays – these are also convenient acquisitions. It is in the DJ Basin where Chevron will be a new player, and can combine its operational and investment capabilities with Noble’s expertise in the area to drive a larger scale development. The Permian acquisition is 92,000 acres and around 40 per cent of what Chevron wanted to acquire with the failed Anadarko bidding of 2019 – but still respectable since it allows for more synergies and potentially larger-scale developments in the Permian, where the company can prioritise capital investment,” Mr Lara said.
For more information on the transaction please visit here.