Page 9 - NorthAmOil Week 29

NorthAmOil COMMENTARY NorthAmOil

Chevron to buy Noble in

first major post-crash deal

Chevron has agreed to buy Noble Energy 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

GLOBAL THE lull in US mergers and acquisitions debt. However, despite its smaller size, the Noble
(M&As) has come to an end this week, with acquisition has some similarities with that plan.
WHAT: Chevron announcing that it had struck a deal “For [Chevron], the acquisition checks a lot
There are uncertainties to buy US independent Noble Energy for $5bn of the same boxes that the Anadarko transac-
over whether Chevron’s in stock. The acquisition is making waves, as it tion would have: an attractive combination of
acquisition of Noble will is the largest energy industry transaction to be high-return US unconventionals (DJ & Per-
be followed by more oil announced since the oil price downturn began in mian), integrated midstream assets (NBLX)
and gas deals. March. It is also significant for a number of other and geographic diversification via capital effi-
reasons, marking a super-major’s entry into cient international gas resources (Eastern Med-
WHY: Israel for the first time and signifying a greater iterranean and Equatorial Guinea), all trading
Buyers could be attracted focus on gas on Chevron’s part. at a large sum-of-the-parts discount,” Morgan
by bargain prices, but Initial reactions to the deal included hopes Stanley said in a note.
appetite has been muted that it would usher in a new era of oil and gas The Eastern Mediterranean assets in particu-
in recent months. consolidation as deep-pocketed majors hunt for lar are thought to have been a major factor in
bargains and smaller players weigh up options attracting Chevron. Shale, on the other hand,
WHAT NEXT: for their survival. However, there have also been has fallen out of favour somewhat since last year,
The Noble deal will also warnings that the appetite for new acquisitions when Permian Basin holdings were considered
give Chevron a foothold has been lacking in recent months, and that the one of the main draws in the bidding contest for
in Israel. Chevron deal does not necessarily change this. Anadarko.

Making waves Eyes to the east
Including the assumption of Noble’s debt, the Noble’s assets in the Eastern Mediterranean
total value of the deal is around $13bn. The include operating interests in the producing
transaction price tag of $5bn equates to $10.38 Leviathan and Tamar gas fields offshore Israel,
per Noble share – a 7.5% premium to the com- as well as the Aphrodite gas discovery in neigh- Noble’s share
pany’s closing share price on July 17 and around bouring Cypriot waters. Noble estimated that it
a 12% premium to its 10-day average. had 35 trillion cubic feet (991.2bn cubic metres) price had fallen
Noble’s share price had fallen more than 60% in discovered gross recoverable resources across more than 60%
between the start of the year and July 17, and its Eastern Mediterranean operations as of the
thus the deal may still be seen as a bargain. And end of 2018. In 2019, its Eastern Mediterranean between the start
RBC Capital Markets noted that this was still a sales volumes – all in Israel – averaged 223mn
discount to its price target for Noble of $13 per cubic feet (6.3mn cubic metres) per day of gas of the year and
share, making it a “small premium compared equivalent. Production at Leviathan is set to
to other deals in the space historically”. Invest- ramp up further between now and 2023, peaking July 17.
ment bank Morgan Stanley echoed RBC’s view, at 1.2bn cubic feet (34.0 mcm) per day.
describing the deal as a “low-premium” one Chevron noted in its July 20 presentation on
that came in just below its valuation for Noble the deal that the transaction would also bolster
of roughly $11 per share. its footprint offshore Egypt, where it has existing
Among other ways in which the deal is note- operations.
worthy, it is Chevron’s first major acquisition In Cyprus, Noble was granted an exploita-
after it walked away from its takeover of Ana- tion licence for Aphrodite in November 2019,
darko Petroleum last year, having been outbid together with its partners Royal Dutch Shell
by Occidental Petroleum. The failed Anadarko and Delek Group. Under the plan approved for
deal had been significantly larger – Chevron Aphrodite, produced gas will be sent via a sub-
had initially agreed to acquire the company for sea pipeline to Egypt, where it will be liquefied
$33bn, or $50bn including the assumption of for export to markets in Europe and elsewhere.

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