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Occidental Outbids Chevron in the Race to Acquire Anadarko

Jewel Saha

Occidental Petroleum OXY has joined the race to acquire Anadarko Petroleum APC. Occidental’s offer is far more lucrative than the proposal made by Chevron Corporation CVX earlier this month.

This offer is expected to be accretive to Occidental’s free cash flow. The company has identified $2 billion in annual cost synergies and $1.5 billion of annual capital expenditure reductions.

Occidental’s Offer

Occidental offered $38 in cash and 0.6094 shares of its common stock for each share of Anadarko.
 
Occidental’s offer is split 50/50 between cash and stock, while that of Chevron includes 75% stock and 25% cash. Occidental offered to acquire Anadarko at $76 per share, which is 20% higher than Chevron’s offer for Anadarko. However, Chevron’s proposition boasts a higher stock component than Occidental’s offer.

Occidental made the offer to acquire Anadarko as it believes that the latter’s assets in the Permian Basin will complement its existing operation in this resource-rich region.

Can Chevron Make a Counter Offer?

Anadarko’s premium U.S. shale properties — the Delaware and Denver-Julesburg (DJ) basins, and the Deepwater Gulf of Mexico (GOM) assets — are a perfect fit for Chevron to expand its domestic operations. In addition, Anadarko’s international exposure will allow Chevron to further expand its operations internationally.

Given the financial strength of Chevron and resource-rich assets of Anadarko, we expect Chevron to make a counter offer to win back the confidence of Anadarko’s shareholders.

U.S. Shale in Focus

The shale revolution has significantly increased oil and gas, and hydro-carbon production in the United States. This has attracted the attention of oil and gas super majors who were otherwise busy exploring deep waters and the Middle East.

Per a media report, ExxonMobil XOM is contemplating the sale of stake in some of the oil and gas fields in Nigeria to focus more on the development of U.S. shale operations. In 2017, ExxonMobil’s acquisition of Permian assets previously owned by the Bass family strengthened its presence in the Permian basin. ExxonMobil might opt for further increasing its holdings in Permian by making an offer to acquire Noble Energy NBL or Pioneer Natural Resources Company PXD,both currently having strong holdings in the Permian Basin.

Zacks Rank

Currently, Occidental Petroleum carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Price Movement

Post the announcement, shares of Anadarko rallied 11.58%, while that of Chevron and Occidental declined 0.6% and 3.1%, respectively.

Price Performance



Anadarko shares have gained 52.6% from the time of Chevron’s offer compared with its industry's 9.7% rally in the same time period.

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