U.S. oil major Chevron has agreed to buy Noble Energy, in an all-stock transaction valued at $5 billion, or $10.38 per share.
Based on Chevron’s closing price on July 17, 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 $13 billion.
"The acquisition of Noble Energy provides Chevron with low-cost, proven reserves and attractive undeveloped resources that will enhance an already advantaged upstream portfolio. Noble Energy brings low-capital, cash-generating offshore assets in Israel, strengthening Chevron’s position in the Eastern Mediterranean. Noble Energy also 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 said.
“Our strong balance sheet and financial discipline gives us the flexibility to be a buyer of quality assets during these challenging times,” said Chevron Chairman and CEO Michael Wirth.
Wirth said the deal was a cost-effective opportunity for Chevron to acquire additional proved reserves and resources.
Based on Noble Energy’s proved reserves at year-end 2019, the transaction will add approximately 18 percent to Chevron’s year-end 2019 proved oil and gas reserves at an average acquisition cost of less than $5/boe, and almost 7 billion barrels of risked resource for less than $1.50/boe.
"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. We look forward to welcoming the Noble Energy team and shareholders to bring together the best of our organizations," Wirth said.
“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 said.
“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,” said David Stover, Noble Energy’s Chairman and CEO.
"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 maximize value for all Noble Energy shareholders. We look forward to bringing together our highly complementary cultures and teams to realize the long-term value and benefits that this combination will deliver."
Woodmac: First big deal of the downturn
Commenting on the Chevron's planned acquisition of Noble Energy, Tom Ellacott, senior vice president, corporate analysis, at Wood Mackenzie, said this was the first large-scale corporate acquisition of this downturn.
“Chevron was our top pick to lead bottom-of-the-cycle corporate consolidation arising from the oil price collapse and the Covid-19 pandemic.
“The move follows Chevron’s US$50 billion bid for Anadarko in April 2019 [Editor's note: Chevron later pulled out and Anadarko was bought by OXY] . Although of a smaller scale, the acquisition of Noble will go further in reducing the concentration of Chevron’s upstream portfolio around core anchor positions in the Permian, Australian LNG, Kazakhstan and the US Gulf of Mexico.”
Jean-Baptiste Bouzard, from WoodMac’s upstream research team, said: “Noble’s position in Israel is the company’s crown jewel. Israel will provide Chevron with a new core international geography that will rebalance the portfolio towards gas and provide a springboard to capture further upside potential in the region.
“Much of Noble’s upstream value comes from its positions in Israel and Cyprus.
“It would be interesting to see if the acquisition boosts development plans for Noble’s Aphrodite discovery, offshore Cyprus, as well as ramping up production from its flagship assets in Israel, Tamar, and Leviathan.”
Bouzard added: “Both companies also recently entered upstream Egypt, with a focus on frontier exploration in the offshore Herodotus basin.”
Ellacott said: “Noble’s portfolio in the DJ basin will add a new play to Chevron’s US unconventional portfolio. It also provides complementary Permian acreage that will enhance Chevron’s strong position in the Delaware basin.”