US Oxy Outbids Chevron for Anadarko
US producer Occidental Petroleum (Oxy) notified the board of Anadarko Petroleum April 24 that it was making a 20% higher priced bid for its shares than the US major Chevron had bid.
In a letter, it said: "The transaction you announced with Chevron indicates that the Anadarko board believes that $65 per share is a fair price for your shareholders. Occidental is hereby proposing to acquire Anadarko for $76 per share, comprised of $38 in cash and 0.6094 shares of Occidental common stock per Anadarko share."
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It also expressed disappointment at being rebuffed in the recent past, including an offer submitted in writing April 11, for $76/share: "We were surprised and disappointed that your board did not engage with us on that proposal, or our proposal of April 8, even though both were significantly higher than the price you accepted from Chevron."
The combination of Oxy and Anadarko would create a company with over 1.4mn barrels of oil/day of current production. And using Oxy's initiatives to use its CO2 enhanced oil recovery expertise, Oxy said it would be a more responsible producer too.
Oxy said it has identified $3.5bn in annual free cash flow improvements that are expected to be fully achieved by 2021, comprised of $2bn in annual pre-tax run-rate cost synergies and $1.5bn capital reduction, with the potential for further upside.
Oxy said the deal would enhance its position as the largest producer in the Permian with 533,000 boe/d of production, accelerating its value-driven strategy in US onshore through a combination of leading assets and best-in-class economics. Adding to Occidental’s existing cash flow generating international and chemicals portfolio, Anadarko’s industry-leading DJ Basin operations combined with its cash flow generating assets in the Gulf of Mexico, Algeria and Ghana, provide complementary growth and enhanced stability, it said.
The 50-50 cash and stock transaction is valued at $57bn, based on Occidental’s closing price on April 23, 2019, including the assumption of net debt and book value of non-controlling interests.
“Occidental is a leader in using technological innovation to create value, and we will deploy our expertise to enhance the performance and productivity of Anadarko's assets not only in the Permian, but globally,” said CEO Vicki Hollub. “Occidental and Anadarko have a highly complementary asset portfolio, providing us with a unique opportunity to realize significant operating, cost, and capital allocation synergies and achieve near-term cash flow accretion.”
Vicki Hollub continued: “We have been focused on Anadarko for several years because we have long believed that we are ideally positioned to generate compelling value from a combination with them. We look forward to engaging immediately with Anadarko's board and stakeholders to deliver this superior transaction.”
Wood Mackenzie said the deal, if it went through, would give Oxy similar scale in the US Permian that ExxonMobil or Chevron have, giving it 1mn boe/day Permian output in the late 2020s. "The deal highlights that diversity is still valued by US independents, and would mark Occidental's entry into deepwater Gulf of Mexico and LNG," it said.
But it would be financially "a big stretch" as Oxy's gearing ratio at the end of the fourth quarter was 25% and a transaction would materially increase the company's leverage ratios, and stretch its balance sheet.