Page 6 - DMEA Week 29

DMEA COMMENTARY DMEA

Chevron to buy Noble in first major

post-crash deal

Chevron is to buy Noble Energy for $5bn in stock, but whether this ushers in a
new wave of consolidation remains uncertain

GLOBAL 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-
WHAT: Chevron announcing that it had struck a deal mian), integrated midstream assets (NBLX) and
There are uncertainties to buy US independent Noble Energy for $5bn geographic diversification via capital efficient
over whether Chevron’s in stock. The acquisition is making waves, as it international gas resources (Eastern Mediter-
acquisition of Noble will is the largest energy industry transaction to be ranean and Equatorial Guinea), all trading at a
be followed by more oil announced since the oil price downturn began in large sum-of-the-parts discount,” Morgan Stan-
and gas deals. March. It is also significant for a number of other ley said in a note.
reasons, marking a super-major’s entry into The Eastern Mediterranean assets in par-
WHY: Israel for the first time and signifying a greater ticular are thought to have been a major factor
Buyers could be attracted focus on gas on Chevron’s part. in attracting Chevron. Shale, on the other hand,
by bargain prices, but Initial reactions to the deal included hopes has fallen out of favour somewhat since last year,
appetite has been muted that it would usher in a new era of oil and gas when Permian Basin holdings were considered
in recent months. consolidation as deep-pocketed majors hunt for one of the main draws in the bidding contest for
bargains and smaller players weigh up options Anadarko.
WHAT NEXT: for their survival. However, there have also been
The Noble deal will also warnings that the appetite for new acquisitions Eyes to the east
give Chevron a foothold has been lacking in recent months, and that the Noble’s assets in the Eastern Mediterranean
in Israel. Chevron deal does not necessarily change this. include operating interests in the producing
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 35 trillion cubic feet (991.2bn cubic metres)
transaction price tag of $5bn equates to $10.38 in discovered gross recoverable resources across
per Noble share – a 7.5% premium to the com- its Eastern Mediterranean operations as of the
pany’s closing share price on July 17 and around end of 2018. In 2019, its Eastern Mediterranean
a 12% premium to its 10-day average. sales volumes – all in Israel – averaged 223mn
Noble’s share price had fallen more than 60% cubic feet (6.3mn cubic metres) per day of gas
between the start of the year and July 17, and equivalent. Production at Leviathan is set to
thus the deal may still be seen as a bargain. And ramp up further between now and 2023, peaking
RBC Capital Markets noted that this was still a at 1.2bn cubic feet (34.0 mcm) 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 29 23•July•2020