Chevron Corp. agreed to buy Noble Energy Inc. for about US$5 billion in shares as the oil giant looks to beef up in the Permian Basin amid the wreckage of the worst-ever crude crash.

The takeover is the industry’s first major deal since the coronavirus triggered a severe slump and the largest since Occidental Petroleum Corp. outbid Chevron to acquire Anadarko Petroleum Corp. for US$37 billion last year.

The deal will grow Chevron’s presence in both the Permian, once the main driver of the shale boom, and the Denver-Julesburg Basin in Colorado. Its proved reserves will rise by about 18 per cent. Buying Noble also enlarges Chevron’s footprint in the Eastern Mediterranean by adding the Leviathan gas field off the coast of Israel.

Chevron bolsters Permian holdings amid a collapse in activity in the basin
“These are high-quality assets at a fair price,” Chevron Chief Executive Officer Michael Wirth said in an interview with Bloomberg TV Monday. “This isn’t just about the Permian Basin. Noble’s got a very impressive position in the Eastern Mediterranean, West Africa, a nice position in Colorado.”

Noble was up 5.8 per cent to US$10.21 at 11:37 a.m. in New York. Chevron dropped 1.3 per cent to US$86.06.

Consolidation in the shale patch has been largely non-existent this year as the combination of a severe oil-price slump and pressure on companies from investors to return cash leaves explorers with little firepower to make deals.

Globally, energy mergers and acquisitions total about US$132 billion so far this year, including the Chevron deal, according to data compiled by Bloomberg. That’s down by almost 60 per cent year on year.

What Bloomberg Intelligence Says

Chevron’s acquisition of Noble Energy comes early in the crude price and credit-tightening cycles, which makes its returns on capital reliant on a recovery in U.S. oil prices and, consequently, slower growth from peers.

-- Fernando Valle, BI analyst

On a conference call to discuss the takeover, Noble CEO Dave Stover was quizzed by analysts over why he accepted Chevron’s offer, given that just five months earlier his company had a market value of nearly US$9 billion, 80 per cent higher than what the supermajor agreed to pay.

“The way we looked at it is, in a stock-for-stock transaction, it maintains the upside exposure and minimizes the downside risk,” he said. “Scale really matters here.”

Analyst at RBC Capital Markets were unimpressed. “Our conversations with investors indicate that most see the acquisition premium as a bit low and are left wondering why the board of directors sold at that valuation,” RBC analyst Scott Hanold wrote in a note.

Chevron has shown interest in buying up distressed shale producers before. Wirth said it was the unique combination of Noble’s nearby, high-quality Permian assets, the huge Israeli gas operation as well as the DJ Basin that got the deal done.

“We get asked a lot about pure-play Permian,” Wirth said on the call. “We’re already big in the Permian. Getting bigger isn’t necessarily the goal; getting better certainly is important.”

Last year, Chevron lost the takeover battle for Anadarko but ultimately walked away the victor with a US$1 billion break-up fee as oil prices plunged. Occidental won with a higher bid, but has subsequently struggled with the large debt pile resulting from that deal. Its shares are down about 75 per cent since the Anadarko saga began.

After Anadarko, Noble was among the top four potential candidates that Chevron could have gone after as it closely resembled Anadarko’s portfolio at a smaller scale, Bob Brackett, an analyst at Bernstein, said Monday in a note to investors.

“We still don’t embrace the Permian M&A theme as a money maker,” Brackett wrote.

Highlights of the deal:

  • Investors will get 0.1191 of a Chevron share for each Noble share. That’s equivalent to US$10.38 a share, or a 7.5 per cent premium over Friday’s closing price.
  • The total enterprise value of the deal is US$13 billion.
  • Noble’s stock fell 54 per cent over the 12 months through Friday.
  • The transaction is expected to close in the fourth quarter, subject to regulatory approvals.