Positive reviews of Chevron
Below is a sampling of commentary from various firms.
Enverus Senior M&A Analyst Andrew Dittmar – “Noble makes perfect sense for Chevron to pursue as an acquisition target given complimentary positions in the Permian plus Noble’s international gas development in the Eastern Mediterranean. Given the natural fit of the assets, Noble has been viewed as likely being on Chevron’s radar from the moment Chevron chose to walk away from any bidding contest with Occidental over Anadarko.
“Along with the Permian, the best fit and biggest draw in Noble’s portfolio for Chevron may be the Eastern Mediterranean gas projects at Leviathan and Tamar. These are premier, long-life fields providing gas to Israel, Egypt, and Jordan. Chevron, like its major peers, has targeted these types of international gas projects as key pieces of its portfolio likely seeing long-term secular tailwinds to support gas demand over the next few decades.”
Tom Ellacott, senior vice president, corporate analysis, at Wood Mackenzie – “Chevron was our top pick to lead bottom-of-the-cycle corporate consolidation arising from the oil price collapse and the Covid-19 pandemic.
“The move follows Chevron’s US$50 billion bid for Anadarko in April 2019. Although of a smaller scale, the acquisition of Noble will go further in reducing the concentration of Chevron’s upstream portfolio around core anchor positions in the Permian, Australian LNG, Kazakhstan and the US Gulf of Mexico.
“Noble’s portfolio in the DJ basin will add a new play to Chevron’s US unconventional portfolio. It also provides complementary Permian acreage that will enhance Chevron’s strong position in the Delaware basin.”
Jean-Baptiste Bouzard, from WoodMac’s upstream research team – “Noble’s position in Israel is the company’s crown jewel. Israel will provide Chevron with a new core international geography that will rebalance the portfolio towards gas and provide a springboard to capture further upside potential in the region.
“Much of Noble’s upstream value comes from its positions in Israel and Cyprus. It would be interesting to see if the acquisition boosts development plans for Noble’s Aphrodite discovery, offshore Cyprus, as well as ramping up production from its flagship assets in Israel, Tamar and Leviathan.”
From the firm of Tudor, Pickering and Holt – Having entered the recent downturn in oil prices with the best balance sheet in the space, we’d seen CVX as amongst the most likely to transact, with the announced Noble acquisition taking advantage. CVX announced that it had entered into an agreement to acquire NBL in a $5B all stock transaction (58 million shares issued, 12% premium to 10-day average), for a total enterprise value of $13B including NCI. Overall, the transaction is expected to be accretive to each of ROCE, FCF, and earnings within one year after closing at $40/bbl Brent (expected close Q4’20), with pre-tax synergies of $300MM.
The deal bolsters CVX’s unconventional portfolio in the Permian (highlighted 92,000 contiguous and adjacent acreage), with the DJ Basin highlighted as offering competitive returns similarly, while the international portfolio primarily in Israel is highlighted as diversifying CVX’s international portfolio and offering competitive returns and FCF. For the majors, with reserves and risked resource often in focus, the transaction will add 18% to CVX’s YE 2019 proved reserves at <$5/boe, with nearly 7 Bboe of risked resource of <$1.50/boe.
While the acquired Permian position may offer limited expansion of CVX’s existing position given the scale (comparing to APC’s 240,000 acres previously sought after), we’re fans of the deal given the broader FCF offering included via the international portfolio. Further details to come post the 8AM EST conference call.
Paul Sankey, lead analyst at Sankey Research – “We love Chevron’s deal for Noble Energy ($NBL), based on the low premium, the massive out-performance of Chevron stock to Noble stock, the resolution of the extremely awkward “neither fish nor fowl” asset/business mix of Noble, and the ending of Noble’s zig-zagging strategic direction. Noble shareholders might not feel the same way.
“Noble has a unique combination of the two extremes of political risk for oils (Israel and Colorado) that gives it a highly risked low multiple. The company gets, at any given time, the lowest common denominator on geopolitical risk that flips from Middle East fear, to Colorado drilling politics. Chevron resolves all the negatives and takes all the positives: huge resource in the Eastern Mediterranean, complementary Permian acreage, a major position in Colorado, CEO Mike Wirth’s home state. The price is great, with a low premium for an all-stock deal.”
Related to the overall environment for M&A activity, Enverus’s Dittmar had this to say – “Oil and gas M&A was already slow headed into 2020, and the worldwide COVID downturn slammed the brakes on any potential deals. However, it also created potential opportunities down the back half of the year and less than one month into Q3 we have our first major acquisition.
“This deal lays out the blueprint for what post-COVID consolidation will likely need to look like with all-stock consideration, a moderate premium, and asset fit and synergies that are an easy and natural story to tell investors. This could certainly ignite a wave of additional consolidation, although that is by no means certain as we saw with not many majors deals after the Anadarko takeover. While potential targets may be more plentiful, there aren’t that many companies with Chevron’s balance sheet strength and investor support to make up a buyer base.”
All in all, management at Chevron probably couldn’t have hoped for a more positive reception. Now, to avoid last year’s bidding war and push the deal over the finish line.