Rising Above the Fray Series – Tracking the Horserace for the Anadarko Petroleum Prize

Rising Above the Fray Series – Tracking the Horserace for the Anadarko Petroleum Prize

Drillinginfo’s Market Intelligence and Market Research product lines have performed in-depth research regarding the valuation and strategic aspects regarding the battle between Chevron and Occidental for the prized Anadarko Petroleum (NYSE: APC). For more detailed information on these aspects, please visit a replay of Drillinginfo’s Webinar held on April 25, 2019, which can be found here:

Depending on the final outcome, the acquisition of Anadarko Petroleum will easily rank within the Top 10 all-time upstream oil and gas deals in history as measured in dollars of the day.

Recap

April 12, 2019, Friday morning

  • Chevron (NYSE: CVX) and Anadarko announce a definitive agreement executed on April 11, 2019 whereby Chevron would acquire Anadarko
  • Offer at announcement is $65/share (25% cash/75% equity) for Anadarko structured as $16.25/share cash and .3869 of Chevron stock.
  • Deal value of $50 billion consisting of $33 billion in equity and $17 billion of net Anadarko debt assumed.
  • Offer represents a 39% premium to Anadarko prior day stock price
  • Merger Agreement includes a $1 billion termination fee to be paid by Anadarko to Chevron. This equates to $2.04 per APC share based on its 1Q 2019 shares outstanding.
  • Anadarko closes Friday at $61.78/share – up 32%.

April 24, 2019, Wednesday morning

  • Occidental Petroleum (NYSE: OXY) announces a competing offer to buy Anadarko
  • Offer at announcement is $76/share (50% cash/50% equity) for Anadarko structured as $38.00/share cash and .6094 per share of Occidental stock.
  • Deal value of $57 billion consisting of $40 billion in equity and $17 billion of net Anadarko debt assumed.
  • Offers represents a 20% premium to Anadarko’s share price from the prior day ($63.99) and a 62% premium from Anadarko’s share price the day prior to the Chevron offer.
  • Anadarko closes Wednesday at $71.40/share – up 12%.

April 24, 2019, Wednesday

  • Chevron issues a statement – “We are confident the transaction agreed to by Chevron and Anadarko will be completed.

April 29, 2019, Monday morning

  • Anadarko announces intention to resume negotiations with Occidental.
  • Anadarko’s Board of Directors unanimously determined that the Occidental proposal could reasonably be expected to result in a “Superior Proposal” as defined in the Chevron Merger agreement.
  • Chevron issues a statement – “We believe our signed agreement with Anadarko provides the best value and most certainty to Anadarko’s shareholders.

April 30, 2019, Tuesday morning

  • Following reports by Bloomberg of an Oxy jet being in Omaha on Sunday, the dots connect with an official announcement that Warren Buffett’s Berkshire Hathaway commits to a $10 billion preferred equity investment (8% yield plus 80 million warrants to buy Oxy at $62.50/share) contingent on Oxy completing a deal with Anadarko.

While rare, a battle for the acquisition of a large, recognized E&P company is not without precedent. Certainly, within the U.S., the most famous battle began in late 1983 when Pennzoil made an informal but binding contract to acquire Getty Oil in a complex structure that valued Getty at $112.50/share. On January 6, 1984, Texaco announced an offer and Getty agreed to sell at $125/share. The battle famously resulted in a long legal dispute whereby Pennzoil (represented by attorney Joe Jamail) accepted a $3 billion settlement after Texaco filed Ch 11 bankruptcy.

The Scorecard of Offers for Anadarko (per APC share)

Company Date Price Cash Stock Cash/Equity
Chevron Offer  April 12, 2019 $65.00 $16.25 0.3869 CVX share 25%/75%
Occidental Offer  April 24, 2019 $76.00 $38.00 0.6094 OXY share 50%/50%
Occidental Offer  May 5, 2019 $76.00 $59.00 0.2934 OXY share 78%/22%

The Horserace: Implied Offer Values per APC Share and APC Share Price (as of Market Close)

  April 24 April 25 April 26 April 29 April 30 May 1 May 2
Chevron Offer $62.00 $61.87 $61.56 $61.79 $62.70 $61.83 $61.28
Occidental Offer $75.78 $75.69 $75.36 $74.62 $73.88 $73.03 $72.95
Anadarko Price $71.40 $71.77 $72.80 $72.93 $72.85 $72.37 $71.54

Update

May 5, 2019, Sunday

  • OXY affirms its bid of $76/share and increases cash component from $38 to $59. Deal would not require an OXY shareholder vote.
  • OXY also announced a sale of APC’s Africa assets to Total S.A. for $8.8 billion, contingent on completing the APC buy.
  • Anadarko states OXY bid under review for a “Superior Proposal” which if invoked allows Chevron four business days to revise its terms for APC.

May 6, 2019, Monday after market close

  • Anadarko deems the OXY proposal a “Superior Proposal.”
  • Chevron has four business days ending May 10 to submit a revised offer, extendable under defined certain conditions.

Finish Line

May 9, 2019, Thursday pre-market

  • Chevron declined to make a counter-proposal for Anadarko stating capital discipline, an advantaged portfolio and a 25% increase in share buyback program to $5 billion per year.
  • Chevron closed up 3.1% to $121.19 per share.
  • Anadarko closed down 3.3% to $73.39 per share.
  • Occidental closed down 6.4% to $56.33 per share.

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This blog was last updated on May 9, 2019.

Rising Above the Fray Series

Rising Above the Fray Series

The Eagle Soars —

BP’s Transformative $10.5 Billion “Solid Buy”

As highlighted on July 10, a plethora of factors aligned to kick off a projected significant increase in U.S. M&A activity in the second half of 2018.  In dramatic fashion on Thursday, July 26, BHP and Chesapeake announced asset sales totaling $12.7 billion to three buyers – BP, Merit Energy, and Encino Acquisition Partners.  Thus, on a single day, Q3’s deal value already exceeded Q2’s total of $8.7 billion by 50 percent.  As of this writing on August 13, the momentum continues and in less than half way through Q3, U.S. upstream M&A deal value tallies $17.5 billion, or over 100% above all of Q2.

Looking back to the July 26 deals, Houston-based Encino Acquisition Partners bought Chesapeake Energy’s Ohio Utica shale for $1.9 billion, Dallas-based Merit Energy snapped up BHP’s Fayetteville assets for $300 million, and BP (who recently moved its Lower 48 business to Denver) purchased the Permian, Eagle Ford, and Haynesville onshore portfolio of BHP for $10.5 billion.

BP’s $10.5 billion buy of BHP’s U.S. shale assets is hugely positive.  After a long and well-publicized struggle, BP finally gets to play offense through a transformative deal that bodes well for securing its future as a major U.S. producer and opens up strategic options for the company, including a potential IPO of its U.S. business.  Not only did BP strike big, our analysis indicates it did so at an attractive price.  Notably, the $10.5 billion price tag ranks as the fourth largest U.S. upstream deal essentially since the beginning of the shale revolution.  That list is topped by Exxon’s $41 billion XTO buy in December 2009, followed by Freeport-McMoRan’s $16.3 billion buy of Plains Resources in December 2012, and BHP’s $15.1 billion buy of Petrohawk Energy in July 2011.

Regarding the BP buy itself, most market pundits touted it as the grand entrance of BP into the Permian Basin.  Indeed, BP did pick up 83,000 net acres in an over-pressured and liquids-rich portion of the Delaware Basin concentrated mostly in northern Reeves County, with key offset operators including Conoco, Anadarko, and WPX. However, we note that the acreage is largely in the condensate/wet gas window versus the oil window to the east.

Contrary to popular commentaries on the transaction, our valuation analysis indicates that the Eagle Ford is in fact the most valuable portion of the package, coming in at $4.8 billion (46 percent of the deal), followed by the Permian at $3.9 billion (37 percent), and the Haynesville at $1.8 billion (17 percent).  These numbers include the value of the various packages’ existing production based on our current market multiples of $50,000/daily bbl (oil & condensate), $20,000/daily bbl NGL, and $2,250/daily Mcf.  After backing out existing production, the Permian acreage does top the acquired land positions at $2.5 billion (or $30,400/acre), compared to the Eagle Ford (two packages) at $1.9 billion ($30,000/acre for Black Hawk in Karnes and DeWitt counties (core-of-core Eagle Ford) and $2,500/acre for Hawkville primarily in central McMullen County (gas window), and finally $1.0 billion for the Haynesville ($5,000/acre).

Regarding the Permian, the $30,400/acre number by our analysis appears to be a solid buy by BP.  The high water mark in the Permian was recently set at $75,000/acre in the $9.5 billion all-stock acquisition of RSP Permian by Concho Resources in late March.  In the Concho deal, the acreage covered core-of-core positions in both the Midland and Delaware basins.  On a comparative basis, Concho picked up 62,000 boe/d and about 92,000 net acres for $9.5 billion while BP picked up 40,000 boe/d and 83,000 net acres for $3.9 billion.

The true story of the deal may well lie in the Eagle Ford where BP touts 1,400 gross drilling locations at an impressive post-tax IRR of 40-95 percent.  On an apples-to-apples basis, BP touts picking up 3,400 gross locations in the Permian at roughly half the post-tax Eagle Ford IRR or 25-50 percent.  In the Haynesville, BP claims 720 locations at a post-tax IRR of 15-25 percent.  All the IRRs are based on $55 WTI and $2.75 Henry Hub.

Furthermore, the Hawkville area of the Permian in central McMullen and La Salle counties contains a largely contiguous block of an impressive 142,000 net acres.  This gas portion of the Eagle Ford may be a sleeping giant in BP’s forward plans as Drillinginfo’s Fundamental Edge research lights up the eastern portion of this acreage block as a highly economic portion of the Eagle Ford.  Also in this neighborhood, Silverbow has its Oro Grande field with type curves now at 14 Bcf EURs (1.9 Bcf/1000’ lateral) and IRRs of 60 percent based on $3.00 gas.

With this buy, BP has multiple ways of winning.  Not only has it acquired immediate scale, it also has strategic optionality between basins and between commodities.  BP also has the big data, technological clout, and intellectual capital to drive efficiencies and margins to the top-of-class status.

We are closely watching whether BP will be doing an encore buy – particularly related to a significant offset position to the core-of-core Black Hawk position being marketed by Pioneer Natural Resources (59,000 net acres to PXD and held in a JV with India’s Reliance) as Pioneer sheds assets to become a Permian pure-play.

For more on M&A or Fundamental Edge, please contact Drillinginfo.

 

 

 

Brian Lidsky, Senior Director, Drillinginfo Market Research. Prior to joining Drillinginfo, he had roles including EVP of John S. Herold, Inc., co-founder of Vigilant Exploration, and Managing Director of PLS Inc. He has extensive industry experience with particular expertise in M&A, Valuations, Market Intelligence, and Capital Markets. Brian holds a B.S. in Geology from Emory University and an MBA from the Jones Graduate School of Business at Rice University.