The good old days of oil mega-mergers might be returning sometime soon. Despite oil prices recovering to a somewhat reasonable $40 per barrel, shares of many oil-producing companies are still trading at significant discounts. As such, many of these companies are especially attractive buyout targets for larger companies that have some cash left over to spend. That’s exactly what’s going on with Chevron (NYSE: CVX), a major oil giant that announced it would be spending up to $5 billion to acquire Noble Energy.
It’s the biggest oil merger seen so far this year. The deal also is at a pretty reasonable price for Chevron, in which the company is offering $10.4 per share of Noble. That’s just a 7.6% premium in comparison to where the stock was trading at last week. From a percentage standpoint, that’s also pretty low for a premium, meaning that Chevron doesn’t feel it needs to pay out that much in order to appease Noble’s shareholders during this time.
“The downturn in energy prices and demand have put pressure on a lot of different companies in our industry,” said Mike Wirth, Chevron’s CEO, according to the Wall Street Journal. He went on to mention that Noble’s assets are quite cost-efficient and would require little additional investment from Chevron, which is one reason why the company’s making this deal right now. “This is an opportunity to bring together two companies and have a stronger company, I think, coming out of it.”
The deal would expand Chevron’s presence in a number of major oil-producing areas, including the DJ Basin in Colorado as well as the famous Permian Basin in Texas/New Mexica. At the same time, Chevron would also acquire some assets in the Mediterranean as well as West Africa. Overall, the deal is expected to yield around $300 million in cost savings.
The last oil-and-gas related deal of similar size was Berkshire Hathaway’s decision to buy Dominion Energy for around $4 billion earlier in July. Coupled with this latest announcement from Chevron, it seems like things could be turning around for the previously devastated energy sector.
Shares of Chevron didn’t move much in response to the news, which is to be expected given the company’s $159 billion market cap. Since the start of the year, Chevron has slowly been hemorrhaging its stock price, which is pretty common for most companies across the sector.
Chevron Company Profile
Chevron is an integrated energy company with exploration, production, and refining operations worldwide. Chevron is the second- largest oil company in the United States with production of 3.2 million of barrels of oil equivalent a day, including 7.6 million cubic feet a day of natural gas and 2.0 million of barrels of liquids a day. Production activities take place in North America, South America, Europe, Africa, Asia, and Australia. Its refineries are in the United States, South Africa, and Asia for total refining capacity of 1.7 million barrels of oil a day. Proven reserves at year-end 2019 stood at 11.4 billion barrels of oil equivalent, including 6.5 billion barrels of liquids and 29.5 trillion cubic feet of natural gas. – Warrior Trading News
