HOUSTON -- Chevron positioned itself to become the dominant oil producer in the field that is driving the U.S. shale revolution when it said Friday that it was buying Anadarko Petroleum for $33 billion.
The acquisition is the largest takeover in the global oil industry in three years and signals that shale drilling, which was once dominated by small and nimble independent companies, has now become a battleground for oil giants. It also demonstrates that the largest oil companies believe that they can profitably drill in shale fields even when crude-oil prices are much lower than they were a decade ago.
In buying Anadarko, Chevron is picking up major oil and natural-gas projects in the Gulf of Mexico, Colorado, Mozambique, Algeria and Ghana. But most of all, it is building on its position in the Permian Basin of west Texas and New Mexico, which recently passed Saudi Arabia's Ghawar field as the world's most productive oil field.
More than a dozen oil and gas pipelines serving the Permian are expected to be completed by the middle of 2020, potentially increasing exports from the Gulf of Mexico region to 8 million barrels a day from 2 million barrels a day.
Anadarko and Chevron have a 75-mile stretch of contiguous acreage in the Permian, which should help the companies reduce production and transportation costs. About a third of total U.S. oil production comes from the basin, which is largely responsible for the production and export boom of recent years.
"This is a compelling transaction," Chevron's chief executive, Michael Wirth, told analysts. "We intend to accelerate activity in Anadarko's Permian acreage."
Chevron, which is based in San Ramon, Calif., is the world's 10th-largest company producing oil and gas, and Texas-based Anadarko ranks 41st, according to Rystad Energy, a consulting firm. Once the merger is completed by the end of the year, Chevron will climb to seventh place, vaulting ahead of Royal Dutch Shell and BP. It will still trail Exxon Mobil, Saudi Aramco and four other national oil companies.
Anadarko's Permian assets are among the most lucrative in the United States. The company has identified 10,000 drilling locations on its acreage, according to a recent Morningstar report.
Per Magnus Nysveen, who heads research at Rystad, said the deal would help Chevron emerge "as the clear leader among all Permian players, both in terms of production growth and as a cost leader." He estimated that by 2025, the merged companies would produce as much as 1.6 million barrels of oil a day in the Permian alone -- more than the total current production of Algeria, a leading member of OPEC.
The acquisition continues a trend toward more concentration of Permian production in the hands of giant oil companies, which in recent years had fallen behind dozens of smaller and more nimble independents like Anadarko.
Over the past four years, the annual capital investment in the Permian by the three big oil companies -- Chevron, Exxon Mobil and Shell -- climbed to more than $8 billion from less than $2 billion, according to IHS Markit, the energy consultancy. Adding BP, which gained a foothold in the Permian last year, the oil giants are expected to invest more than $10 billion in that field this year.
The Permian produces roughly 4 million barrels of oil a day, slightly more than Ghawar. Saudi Aramco recently revealed in documents released as part of a bond sale that the daily production from that field was smaller than many people in the industry had estimated.
IHS Markit predicts Permian production will climb to 5.4 million barrels a day in 2023, more than any OPEC member with the exception of Saudi Arabia.
In addition to the Permian, Anadarko has been a leader in discovering and developing natural gas in Mozambique. Chevron engineers reviewed Anadarko's project, and executives say they will keep Anadarko personnel there.
Chevron and Anadarko also have large stakes in deep-water projects in the Gulf of Mexico that are close to one another. And the two companies have worked together on some projects there.
"The deal plays to Chevron's strengths," said Roy Martin, a senior analyst at Wood Mackenzie, a consulting firm. "It diversifies their growth options."
Chevron said it would pay $65 in cash and stock for each Anadarko share, a 39 percent premium over Thursday's closing price. The deal is the largest in the energy industry since Shell's acquisition of BG Group, the Britain-based oil and gas producer, for about $50 billion in 2016.
After the deal is completed, Chevron said it planned to sell more than $15 billion in assets by 2022, to reduce debt and return cash to shareholders.
Chevron's share price declined by nearly 5 percent on Friday while Anadarko shares soared 32 percent.
Business on 04/13/2019