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MEOG COMMENTARY MEOG

Chevron to buy Noble in

first major post-crash deal

Chevron has agreed to buy Noble for $5bn in stock in the first major deal of the current
oil downturn, but whether this ushers in a new wave of consolidation remains uncertain

EAST MED THE lull in US mergers and acquisitions would have: an attractive combination of
(M&As) has come to an end this week, with high-return US unconventionals (DJ & Per-
Chevron announcing that it had struck a deal mian), integrated midstream assets (NBLX) and
WHAT: to buy US independent Noble Energy for $5bn geographic diversification via capital efficient
There are uncertainties in stock. The acquisition is making waves, as it international gas resources (Eastern Mediter-
over whether Chevron’s is the largest energy industry transaction to be ranean and Equatorial Guinea), all trading at a
acquisition of Noble will announced since the oil price downturn began in large sum-of-the-parts discount,” Morgan Stan-
be followed by more oil March. It is also significant for a number of other ley said in a note.
and gas deals. reasons, marking a super-major’s entry into The Eastern Mediterranean assets in par-
Israel for the first time and signifying a greater ticular are thought to have been a major factor
WHY: focus on gas on Chevron’s part. in attracting Chevron. Shale, on the other hand,
Buyers could be attracted Initial reactions to the deal included hopes has fallen out of favour somewhat since last year,
by bargain prices, but that it would usher in a new era of oil and gas when Permian Basin holdings were considered
appetite has been muted consolidation as deep-pocketed majors hunt for one of the main draws in the bidding contest for
in recent months. bargains and smaller players weigh up options Anadarko.
for their survival. However, there have also been
WHAT NEXT: warnings that the appetite for new acquisitions Eyes to the east
The Noble deal will also has been lacking in recent months, and that the Noble’s assets in the Eastern Mediterranean
give Chevron a foothold Chevron deal does not necessarily change this. include operating interests in the producing
in Israel. Leviathan and Tamar gas fields offshore Israel,
Making waves as well as the Aphrodite gas discovery in neigh-
Including the assumption of Noble’s debt, the bouring Cypriot waters. Noble estimated that it
total value of the deal is around $13bn. The had 35tcf (991.2bcm) in discovered gross recov-
transaction price tag of $5bn equates to $10.38 erable resources across its Eastern Mediterra-
per Noble share – a 7.5% premium to the com- nean operations as of the end of 2018. In 2019,
pany’s closing share price on July 17 and around its Eastern Mediterranean sales volumes – all in
a 12% premium to its 10-day average. Israel – averaged 223mn cubic feet (6.3mn cubic
Noble’s share price had fallen more than 60% metres) per day of gas equivalent. Production at
between the start of the year and July 17, and Leviathan is set to ramp up further between now
thus the deal may still be seen as a bargain. And and 2023, peaking at 1.2bn cubic feet (34.0 mcm)
RBC Capital Markets noted that this was still a per day.
discount to its price target for Noble of $13 per Chevron noted in its July 20 presentation on
share, making it a “small premium compared the deal that the transaction would also bolster
to other deals in the space historically”. Invest- its footprint offshore Egypt, where it has existing
ment bank Morgan Stanley echoed RBC’s view, operations.
describing the deal as a “low-premium” one that In Cyprus, Noble was granted an exploita-
came in just below its valuation for Noble of tion licence for Aphrodite in November 2019,
roughly $11 per share. together with its partners Royal Dutch Shell
Among other ways in which the deal is note- and Delek Group. Under the plan approved for
worthy, it is Chevron’s first major acquisition Aphrodite, produced gas will be sent via a subsea
after it walked away from its takeover of Ana- pipeline to Egypt, where it will be liquefied for
darko Petroleum last year, having been outbid export to markets in Europe and elsewhere.
by Occidental Petroleum. The failed Anadarko Cypriot officials are due to hold teleconfer-
deal had been significantly larger – Chevron ences with the heads of both Chevron and Noble
had initially agreed to acquire the company for this week in order to be fully briefed on the trans-
$33bn, or $50bn including the assumption of action, and how it stands to affect the develop-
debt. However, despite its smaller size, the Noble ment of Aphrodite.
acquisition has some similarities with that plan. It is Chevron’s entry into Israel in particu-
“For [Chevron], the acquisition checks a lot lar that is turning heads, given that it will be
of the same boxes that the Anadarko transaction the first super-major to operate in the country.

P6 www. NEWSBASE .com Week 30 29•July•2020