Chevron announced Monday that it will buy from independent oil and gas producer Noble Energy, in a move that Chevron CEO Michael Wirth said would be “good business” for shareholders of both companies.
“These are high-quality assets at a very fair price,” Wirth said Monday on CNBC’s “Squawk on the Street”.
The all-stock deal is valued at $ 5 billion, or $ 10.38 per share, and Noble shareholders will receive 0.1191 Chevron shares. Including the debt, the total value of the agreement is $ 13 billion.
The acquisition will enhance Chevron’s portfolio in the oil-rich Permian Basin as well as Colorado’s DJ Basin. Noble Energy also has assets in Israel and West Africa, which will further enhance Chevron’s international footprint. It will also generate about $ 300 million in annual cost savings, Chevron said in a statement.
“This is a cumulative deal on earnings, it increases free cash flow, increases returns and it really creates a stronger company with downside resistance and continued upside leverage,” added Wirth.
The deal is the largest in the industry since oil prices plummeted in March and April, hit by a price war between Saudi Arabia and Russia, as well as an unprecedented drop in demand due to the pandemic. In April, West Texas Intermediate crude futures briefly fell into negative territory for the first time in history.
Since then, oil prices have rebounded somewhat, and WTI is currently trading around $ 40 a barrel. Still, this is a far cry from the more than $ 60 he reached earlier in the year.
Looking ahead, Wirth said he expects turmoil in the commodity market to continue in the near term due to the uncertain trajectory of Covid-19.
“We have to be prepared for an economy that is experiencing some ups and downs,” he said before adding that he does see that oil prices are finally recovering as the world economy grows again. “This is good business even in a low oil price environment. It looks even better if prices recover,” he said.
The acquisition comes more than a year after Chevron sought to buy Anadarko, before losing a higher offer from Occidental.
Chevron’s shares fell 2% on Monday, while Noble Energy gained 5%.
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