Chevron’s dealmaking may not be over

Energy company to boost its U.S. presence with $6.3 billion PDC Energy acquisition

Chevron CEO Mike Wirth says he’s open to more deals after agreeing to buy PDC Energy Inc. for $6.3 billion, but will stay disciplined on price.

Oil and gas producers are flush with cash after raking in record profits over the past year, leaving the U.S. energy patch ripe for a takeover boom. Companies are looking to bulk up and consolidate, acquiring rivals to secure drilling sites for the future.

The PDC tie-up “doesn’t preclude our ability to do further transactions,” Wirth said in a phone interview. “But we don’t have gaps to fill. We’re always looking, but we’ll stay very disciplined as we have been on a number of transactions as we have done over recent years.”

Though a small deal by Chevron’s standards — the price is less than the company’s first quarter cash flow from operations — PDC fits neatly into Wirth’s plan to grow in areas that fit with its existing assets rather take on large, transformative acquisitions. Chevron was widely praised for buying Noble Energy for $5 billion in a similar bolt-on deal in 2020 but has come under scrutiny recently for its lack of growth relative to Exxon Mobil.

Chevron will pay $72 a share for PDC as it seeks to expand in Colorado’s DJ Basin, a roughly 14 percent premium on a 10-day average based on May 19 closing prices, according to a statement Monday. Separately, Exxon Mobil agreed to sell assets in the Williston Basin to Chord Energy for $375 million amid what’s expected to be a busy year of mergers and acquisitions in U.S. shale.

“We expect more deals such as this going forwards,” said Biraj Borkhataria, an analyst at RBC Capital Markets, wrote in a note referring to Chevron’s PDC acquisition.

The deal will double Chevron’s drilling portfolio in the DJ Basin to more than 600,000 acres and nearly triple production in the area to 400,000 barrels a day. The PDC will move the

“We have strong equity as a currency, we have a strong balance sheet, and this is an accretive transaction that supports that.” Chevron CEO Mike Wirth

DJ Basin “into the top handful of assets that we have worldwide,” Wirth said.

PDC also has assets next to Chevron’s huge position in the Permian Basin of West Texas and New Mexico but they are small and not material to production, he said.

Chevron plans to increase its capital spending by $1 billion per year, after realizing about $400 million in cost savings once the transaction closes by the end of the year, pending regulatory and PDC shareholder approval. Its new global spending range will be $14 billion to $16 billion a year through 2027.

“We have strong equity as a currency, we have a strong balance sheet, and this is an accretive transaction that supports that,” Wirth said.

PDC climbed as much as 9.2 percent in New York, while Chevron fell 1.1 percent. PDC shareholders will receive almost a half share of Chevron for each PDC share.

The total enterprise value of the deal including debt is $7.6 billion. Chevron said it expects the tieup to add about $1 billion in annual free cash flow at $70 per barrel Brent oil and Henry Hub natural gas at $3.50 per thousand cubic feet. Morgan Stanley and Evercore advised Chevron, while JPMorgan advised PDC.