California-based Chevron Corp. (NYSE: CVX), which has a major presence in Houston, has reached an all-stock deal to buy Houston-based Noble Energy Inc. (Nasdaq: NBL) a little over a year after losing out on Anadarko Petroleum Corp.

Chevron will acquire Noble’s stock for $10.38 per share, or $5 billion in total, according to a July 20 press release. That represents a nearly 12% premium on the 10-day average based on closing stock prices on July 17. Based on Chevron’s July 17 closing price, Noble Energy shareholders will receive 0.1191 shares of CVX for each share of NBL, and Chevron will issue approximately 58 million shares of stock.

The total enterprise value of the deal is $13 billion, including net debt and book value of non-controlling interest, the release states. Noble Energy shareholders will own approximately 3% of the combined company when the deal closes, which is expected in the fourth quarter. The acquisition is expected to generate $300 million of run-rate operating and other cost synergies within a year of the deal closing.

“The acquisition of Noble Energy provides Chevron with low-cost, proved reserves and attractive undeveloped resources that will enhance an already advantaged upstream portfolio,” the press release states. “Noble Energy brings low-capital, cash-generating offshore assets in Israel, strengthening Chevron’s position in the Eastern Mediterranean. Noble Energy also enhances Chevron’s leading U.S. unconventional position with derisked acreage in the DJ Basin and 92,000 largely contiguous and adjacent acres in the Permian Basin.”

Similarly, Chevron expected its previously announced acquisition of The Woodlands-based Anadarko to boost its upstream business, including in the Permian. Chevron had planned to pay $65 per share, mostly in stock, to buy Anadarko but was outbid by Houston-based Occidental Petroleum Corp. (NYSE: OXY), which offered $76 per share, mostly in cash. Those offers were made in spring 2019, and Occidental closed its acquisition in August 2019.

Since then, the oil and gas industry has been hit by the Covid-19 pandemic, which drove down demand for transportation fuels worldwide, and the threat of a price war. Although oil prices have recovered significantly from the historic lows seen in April, they still haven’t returned to 2019 levels.

“Our strong balance sheet and financial discipline gives us the flexibility to be a buyer of quality assets during these challenging times,” Chevron Chairman and CEO Michael Wirth noted in the July 20 release. “This is a cost-effective opportunity for Chevron to acquire additional proved reserves and resources. Noble Energy’s multi-asset, high-quality portfolio will enhance geographic diversity, increase capital flexibility, and improve our ability to generate strong cash flow. These assets play to Chevron’s operational strengths, and the transaction underscores our commitment to capital discipline.”

For Noble, the deal comes less than a year after it closed a $1.6 billion cash-and-stock deal that represented the conclusion of Noble Energy’s strategic review of its midstream business. Noble Midstream Partners LP (NYSE: NBLX), a master limited partnership, acquired all of Noble Energy’s remaining midstream interests. Noble Energy’s incentive distribution rights were eliminated. The deal immediately lowered the MLP’s cost of capital and enhanced the companies’ alignment, the companies said at the time.

“Over the last few years, we have made significant progress executing our strategic objectives, including driving capital efficiency gains onshore, advancing our offshore conventional gas developments and significantly reducing our cost structure,” David Stover, Noble Energy’s chairman and CEO, said in the July 20 release. “As we looked to build on this positive momentum, the Noble Energy Board of Directors and management team conducted a thorough process and concluded that this transaction is the best way to maximize value for all Noble Energy shareholders.”

Credit Suisse Securities (USA) LLC is acting as financial adviser to Chevron. Paul, Weiss, Rifkind, Wharton & Garrison LLP is acting as legal advisor to Chevren. J.P. Morgan Securities LLC is acting as financial adviser to Noble Energy. Vinson & Elkins LLP is acting as legal advisor to Noble Energy.

By Olivia Pulsinelli – Assistant Managing Editor

Courtesy of The Houston Business Journal

https://www.bizjournals.com/houston/news/2020/07/20/chevron-to-buy-noble-energy.html

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