The duel for Anadarko has been settled. Occidental Petroleum’s superior bid was not matched by a counter offer from Chevron. That bid, according to the Houston Business Journal, includes the outright “equity purchase price … valued at $38 billion, and [a] total transaction value of $57 billion, including the assumption of Anadarko's debt.” The deal was sealed when Chevron indicated on May 8th that it would not forward a counter offer with the explanation that any addition to its initial offer would undermine its current position as the planet’s 13th largest energy company.
In what is likely the most significant battle for control of petroleum resources ever seen, Occidental has changed the landscape of the U.S. upstream sector. Anadarko’s fantastic rock and fluid Permian assets, centered in the Delaware basin of the play will serve to potentially push Occidental from being Texas’ number 9 producer in 2018 to number 4 or better. EOG, Pioneer, COG and Diamondback energy held the top four slots in 2018 accounting for some 20% of all Texas production. The significance of the pending jump for Oxy is that the total share of production in the state is far more meaningful moving into the near future as Texas total production jumped a solid 18% from 2017 to 2018.
In other words, Occidental will increase its potential share of Texas production by 50% with the acquisition. As Texas, and most notably the Permian Basin, continues to surge, that added share will serve to capture increases that, in the Permian alone, is estimated to expand to
8 million barrels a day – a number that is more than all U.S. oil production combined in 2012.
That potential made the nearly $1 billion dollar break-up fee with Chevron charged to Anadarko worth it to Occidental. Regardless, The Houston Chronicle is reporting that the deal has put Oxy’s CEO, Vicki Hollub, on the defensive with its investors and institutional shareholders like T. Rowe price who fear the price was too high. Oxy’s stock has felt the wrath of investors who have bailed to the tune of a 20% drop in Oxy stock value over the past month.
Oxy is indeed looking at ways to mitigate the fears of the 30% of shareholders who voted against the deal. They’ve already announced it will be selling off Anadarko’s corporate jets and is likely to layoff workers within the existing Oxy family. They’d already announced, prior to the sealing of the deal, an agreement to sell Anadarko's Africa assets to Total for $8.8 billion. Further, Hollub believes that due to Oxy’s drilling efficiencies, they can ultimately save “$10 billion in the Permian over time versus its peers.”
Occidental celebrates its 100th anniversary this year. This deal will certainly determine whether the octogenarian will enter its second century as a primary major or as an ailing legacy company that over estimated its potential.