Chevron Corp. agreed to buy oil and gas producer PDC Energy Inc. Denver-based in a $6.3 billion all-stock deal as it looks to expand amid what is expected to be a busy year of US shale M&A.
Chevron will pay $72 per share, a premium of about 14% to a 10-day average based on May 19 closing prices, according to a statement on Monday. The deal will increase Chevron’s production by just under 10% and expand the oil giant’s holdings in the Colorado and West Texas shale basins. Separately on Monday, Exxon Mobil Corp. agreed to sell assets in the Williston Basin to Chord Energy for $375 million.
While it’s a small deal by Chevron’s standards (the price is less than the company’s first-quarter cash flow from operations), PDC fits perfectly with CEO Mike Wirth’s strategic plan to grow with prudence in areas that fit their existing assets rather than taking on large and transformative ones. acquisitions Chevron was widely praised for buying Noble Energy for $5 billion in a similar deal amid the pandemic in 2020, but has recently come under scrutiny for its lack of growth relative to Exxon Mobil Corp.
“PDC’s attractive and complementary assets strengthen Chevron’s position in key U.S. producing basins,” Chevron CEO Mike Wirth said in the statement. “This transaction contributes to all important financial measures and enhances Chevron’s goal of safely delivering higher yields and lower carbon.
Chevron will increase its capital spending budget by $1 billion annually, after realizing about $400 million in cost savings once the transaction closes later this year, pending regulatory approval and the shareholders of PDC. Its new global spending range will be $14 billion to $16 billion annually through 2027.
Oil and gas producers are flush with cash after posting record profits over the past year, leaving the US energy patch ripe for an acquisition boom. Companies are looking to scale up and consolidate, particularly in the Permian Basin of West Texas and New Mexico, the most prolific U.S. shale play.
PDC shares rose as much as 8.5% before the start of regular trading in New York. Chevron shares fell 0.7%.
The total enterprise value, which includes debt, of the deal is $7.6 billion. PDC shareholders will receive 0.4638 Chevron shares for each PDC share.
Chevron said it expects the tie-up to add about $1 billion in annual free cash flow at $70 a barrel Brent oil and $3.50 a thousand cubic feet Henry Hub natural gas. Morgan Stanley and Evercore advised Chevron, while JPMorgan advised PDC.
