Occidental challenges Chevron with higher bid for Anadarko
A pumpjack in the Permian Basin, shown here in January 2016, the region that is driving bids by Chevron and Occidental for Anadarko Petroleum (SPENCER PLATT)
New York (AFP) – Occidental Petroleum launched a counterbid Wednesday to acquire Anadarko Petroleum, challenging Chevron’s proposed takeover in a battle over key US shale assets.
Occidental, a midsized US company, announced it was bidding $76 a share, raising the stakes compared to the $65 offered by larger US rival Chevron, an offer already approved by the Anadarko board and publicly announced on April 12.
Occidental said its deal is valued at $57 billion, compared with $33 billion in the Chevron deal.
The bidding war comes as oil prices are strengthening and highlights the appeal of the shale-rich Permian Basin in Texas in which all three companies are currently active.
Occidental estimated it could achieve $2 billion in annual savings through economies of scale by combining its holdings with Anadarko’s.
That figure “is based on things that we have already done in our own operations and just taking that and applying it to what we can do with the combined assets,” Occidental Chief Executive Vicki Hollub told CNBC, highlighting the company’s proprietary drilling software and modeling.
“There is no other opportunity that has the upside potential that this does. This is one of those very rare opportunities,” Hollub said.
Chevron also projected $2 billion in annual savings from its deal, which would give the company a contiguous 75-mile (121 kilometer) region to develop.
The advantages of scale in the Permian include having greater clout with drilling companies and suppliers, and the capacity to set up more production hubs, which boost efficiency.
The Permian is among the leading shale regions that have vaulted the United States back into the big leagues of global energy producers, enabling it to pump out about 12 million barrels of oil every day, the most in the world.
Occidental’s 2018 revenues were $18.9 billion, less than half Chevron’s and the company $45.6 billion in market capitalization is only about one-fifth that of the “super major.”
The competing bids are a mix of cash and stock, but the new shares issued by Occidental raise greater concerns about diluting the value of existing shares because the company is smaller, analysts say.
– Occidental shares pressured –
Hollub expressed confidence the company’s offer would win support from shareholders.
However, reports the richer bid from Occidental already was spurned surfaced around the time Chevron’s offer was announced, and Occidental shares have fallen almost 10 percent since then.
Mizuho Group analyst Paul Sankey said the drop in Occidental’s shares in recent weeks highlights investor unease over the company’s overall direction, including its interest in Anadarko.
“One issue for Oxy is that every argument they make on synergy is applicable, perhaps with more credibility, to Chevron. That is, the market believes that Chevron is the better buyer,” Sankey said.
“Will Chevron counter? We could see a bump, but equally they might just tough this out. Oxy’s bid is by no means a knock out,” he said. “We believe we could see a $5 sweeten from Chevron to settle the deal, but not a lot more.”
Shares of Anadarko surged 12.0 percent to $71.69 in mid-morning trading, while Occidental lost 2.6 percent to $60.72 and Chevron shed 2.1 percent to $119.49.
Disclaimer: Validity of the above story is for 7 Days from original date of publishing. Source: AFP.