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Chevron is acquiring Noble Energy in an all-stock deal for $10.38 per share (total equity value of $5 billion) and a total enterprise value of $13 billion. Below is commentary from Enverus Senior M&A Analyst Andrew Dittmar.
“Noble makes perfect sense for Chevron to pursue as an acquisition target given complimentary positions in the Permian plus Noble’s international gas development in the Eastern Mediterranean. Given the natural fit of the assets, Noble has been viewed as likely being on Chevron’s radar from the moment Chevron chose to walk away from any bidding contest with Occidental over Anadarko.”
“Noble’s Permian assets are located within the Delaware subbasin in Reeves County. While Noble doesn’t quite bring the Permian scale of an Anadarko to the table, its 92,000 acres are a significant position in an active area of development and contiguous with existing Chevron leasehold. Getting as tight a fit as possible between positions is key for the development synergies investors are looking for and these positions should check that box.”
“Along with the Permian, the best fit and biggest draw in Noble’s portfolio for Chevron may be the Eastern Mediterranean gas projects at Leviathan and Tamar. These are premier, long-life fields providing gas to Israel, Egypt, and Jordan. Chevron, like its major peers, has targeted these types of international gas projects as key pieces of its portfolio likely seeing long-term secular tailwinds to support gas demand over the next few decades.”
“Chevron has taken a cautious and conservative outlook towards M&A and its general operations and balance sheet, reflected last year when it chose not to top Occidental’s bid for Anadarko. That has been a major boon for the company facing the severe downturn in the first half of 2020 and now allows them to capitalize on available opportunities. Given their strength, Chevron has been near the top of just about everyone’s list of potential 2020 buyers.”
“This deal reflects Chevron’s cautious outlook as well. Chevron is choosing to issue all equity and the deal is priced at a moderate premium relative to what is often seen in corporate M&A. On the downside, the moderate premium and lack of cash does leave the door cracked for Chevron to face a competing bid potentially again, as occurred with Anadarko.”
“For Noble shareholders, Chevron equity likely looks like a fine landing spot, even absent a cash sweetener, given Chevron’s operational experience for the assets, balance sheet strength, and ability to fund dividends even in a tough market. Being able to use equity as currency in a corporate acquisition like this is one of the advantages held by companies like Chevron, whose stock is likely viewed as a relatively safe haven.”
“Oil and gas M&A was already slow headed into 2020, and the worldwide COVID downturn slammed the brakes on any potential deals. However, it also created potential opportunities down the back half of the year and less than one month into Q3 we have our first major acquisition.”
“This deal lays out the blueprint for what post-COVID consolidation will likely need to look like with all-stock consideration, a moderate premium, and asset fit and synergies that are an easy and natural story to tell investors. This could certainly ignite a wave of additional consolidation, although that is by no means certain as we saw with not many majors deals after the Anadarko takeover. While potential targets may be more plentiful, there aren’t that many companies with Chevron’s balance sheet strength and investor support to make up a buyer base.”
Global Upstream Deals Over $10 Billion Since 2014
Source: Enverus M&A Database
