Chevron snaps up Noble for $13 billion

Fears of more consolidation rise after firm’s acquisition

Chevron’s acquisition of Noble Energy may represent the first in a wave of consolidations that could leave the energy industry smaller but dominated by big players better able to weather the boom and bust cycles of the volatile oil market.

The California energy major on Monday said it will purchase the Houston independent driller in an all-stock deal valued at $13 billion including debt. The transaction, pending approval from Noble shareholders and regulatory officials, is expected to close this year.

“Scale really matters here as you go forward,” Noble Energy CEO Dave Stover said in a conference call with analysts Monday morning. “The broader capabilities that (Chevron) brings, the financial strength, the commitment to shareholder return, all those things are going to continue to unlock value in these assets for decades.”

Scale, however, could come with a price, if the oil bust caused by the coronavirus pandemic finally ignites mergers and acquisitions that experts have been anticipating for years. Like the downturn itself — which has cost tens of thousands of energy jobs in the Houston area — consolidation would eliminate still more as combined companies employ fewer engineers, geologists and others in an attempt to be more efficient.

“In rough markets, it’s good to be big. It’s

easier to navigate if you have scale and resources,” said Andrew Dittmar, senior mergers and acquisitions analyst at energy research firm Enverus. “But (consolidation) is a point of concern for people.”

Analysts said they weren’t surprised Chevron was the first to make a major acquisition as oil prices have rebounded to $40 a barrel after plunging to negative $37 a barrel in April. Chevron offered $50 billion last year for Anadarko Petroleum but was outbid by Houston-based Occidental Petroleum, which paid $57 billion including debt for The Woodlands-based independent. Oxy has since struggled to sell Anadarko assets to pay off its massive debt as prospective buyers evaporated during the downturn.

“Walking away from Anadarko is why they’re in a position to do a deal like Noble,” Dittmar said. “Noble was the closest fit for Chevron post-Anadarko. The timing worked out well for Chevron, which is one of the strongest companies out there in terms of balance sheet.”

Chevron CEO Mike Wirth said the company was interested in acquiring Noble primarily because of its complementary assets both in the U.S. and around the world.

Noble’s U.S. assets include 92,000 acres in the Permian Basin of West Texas; 336,000 acres in the DJ Basin of Colorado; and 35,000 acres in the Eagle Ford of South Texas. Noble’s international operations also include offshore assets in the waters of Equatorial Guinea off West Africa and the eastern Mediterranean near Israel and Cyprus, which has become “quite a prolific hydrocarbon basin” rich in natural gas, Wirth said.

“We’re already big in the Permian, and getting bigger isn’t necessarily the goal. Getting better is important,” Wirth said. “This deal checks all the boxes that we’ve consistently articulated as the kinds of things we would be looking for. We think this is a good deal for shareholders of both companies.”

The acquisition also will boost Chevron’s proven oil and gas reserves by about 18 percent. About 75 percent of Noble’s proven crude reserves of 2 billion barrels are already developed, allowing Chevron to quickly generate revenue without spending much capital.

The merger of the two companies is expected to save $300 million in operating costs one year after closing, Chevron said, as it cuts redundant corporate positions and reduces costs for consultants, office buildings, technology and insurance.

Chevron said it has no immediate plans to sell off Noble assets that may not fit in its portfolio.

“When we see things that we think are going to work better for somebody else, we’re certainly willing to consider that,” Wirth said. “It’s not a great market right now to be selling assets into. I don’t think you’ll see us rushing out to do anything until we feel like we have a decent market for the prospective transactions.”

Noble Energy produced 18.6 million barrels of crude oil and 46.7 billion cubic feet of natural gas in 2019. It filed for 76 drilling permits last year, ranking No. 32 among U.S. energy producers.

Chevron produced 34.8 million barrels of crude oil and 177.1 billion cubic feet of natural gas in 2019. It filed for 222 drilling permits last year, ranking No. 7 among U.S. energy producers.

The deal has been unanimously approved by the board of directors of both companies and is expected to close in the fourth quarter of this year. The deal will give Noble Energy shareholders about 3 percent of the combined company.