Chevron, the second-largest U.S. oil company after Exxon, and Dow component Chevron (CVX) on Monday announced it has entered into a definitive agreement with PDC Energy (PDCE) to acquire all of the outstanding shares of PDC in an all-stock transaction valued at $6.3 billion, or $72/share. Chevron is cash rich with Q1 adjusted earnings of $6.74 billion or $3.55 per share on revenues of $50.79 billion. Cash flow from operations was $7.2 billion in the quarter with free cash flow at $4.2 billion. With PDC Energy CVX builds a bigger foothold in two prolific oil patches, the Denver-Julesburg Basin and the Permian Basin.
Patience is a virtue, the premium for PDC represents a conservative purchase price, not dissimilar to Chevron’s single-digit premium deal for Noble Energy did in mid-2020, following the onset of the pandemic and a historic crunch in oil demand.
Chevron said it would issue roughly 41 million shares in the deal at 0.4638 share, worth $72 based on Friday’s closing price of $155.23, for each share of Denver-based PDC. It equates to a nearly 11% premium to Friday’s closing price of $65.12. Chevron said the deal has a total enterprise value of $7.6 billion, including PDC’s debt.
This deal builds a bigger foothold in two prolific oil patches, particularly the Denver-Julesburg Basin that straddles Colorado and Wyoming, a region where Chevron already has a large stake.
Chevron said the PDC deal would add 10% to its oil-equivalent proved reserves for under $7 a barrel and add 275,000 net acres adjacent to its position in the DJ Basin, along with 25,000 net acres in the prolific Permian Basin. The Permian Basin of West Texas and New Mexico is the most prolific American oil patch but one where Chevron and many other companies have seen well-productivity issues over the past year.
By comparison the 10% of wells Chevron brought online in the Delaware basin, part of the broader Permian Basin, were about 25% less productive on average than its wells the year before, The Wall Street Journal reported earlier this year, citing Novi Labs data.
CVX Stock Market Reaction
- $154.68 ▼ -0.55 (-0.35%) today
- $154.68 ▼ -13.18 (-7.85%) past year
- $154.68 ▲ +32.51 (+26.61%) past 5 years
- 52wk High $189.68
- 52wk Low $132.54
PDCE Stock Market Reaction
- $71.02 ▲ +5.89 (+9.05%) today
- $71.02 ▲ +3.04 (+4.48%) past year
- $71.02 ▲ +8.94 (+14.44%) past 5 years
- 52wk High $88.32
- 52wk Low $51.20
Oil Companies Hungry
Earlier in the year Exxon held preliminary informal talks with U.S. fracking giant Pioneer Natural Resources Co. about a possible acquisition according to people familiar with the matter the WSJ reported. Exxon, like is in a cash rich position after it delivered its highest-ever annual profit in 2022 fueled by surging oil prices to resurrect it as one of America’s most profitable companies and erase billions of dollars of losses incurred during the pandemic.
Exxon Mobil also on Monday agreed to a $375 million sale of assets in the Bakken Shale of North Dakota to Chord Energy, the shale company that had emerged from the tie-up of Whiting Petroleum and Oasis Petroleum. Exxon held on to other Bakken assets worth billions.
Noble Acquisition
The company’s $13bn acquisition of Noble, the first big move in a wave of mergers that swept through the battered US oil sector in 2020. closed in the fourth quarter of 2020. For 2018 through 2020, the company generated asset sales proceeds of $7.7 billion, in the middle of its guidance range of $5-$10 billion.
Chevron Corporation Q1 23 Earnings:
Highlights
- Adjusted net earnings $6.74 billion (+3.1% Y/Y), Adjusted EPS being $3.55, beating the consensus of $3.41.
- FY23 sales of $50.79 billion, a decline of 6.6% year-over-year, beating the consensus of $47.98 billion.
- Net oil-equivalent production down 3% Y/Y to 2,979 MBOED, lower international production due to the end of Erawan concession in Thailand.
- Capital expenditure of $3 billion for quarter was 55% higher on year, boosted by higher spending in the United States.
- Total shareholder distributions $6.6 billion during the quarter, including dividends of $2.9 billion and share repurchases of $3.75 billion.
- CVX quarterly dividend of $1.51 per share, payable June 12, 2023, to shareholders of record date May 19, 2023.
- Chevron recently increased its targeted annual share repurchase rate to $17.5 billion.
- Chevron expects to repurchase $4.375 billion in shares in 2Q23.
For 2022 Chevron said earnings totaled $35.5B for its highest-ever annual profit, more than double the prior year and about a third above its previous record in 2011.
Production
- Chevron’s net oil-equivalent production was down 3% from the same quarter one year ago to 1.812 million barrels of oil equivalent per day’ ‘
- Down primarily from a reduction of 64,000 bpd in Thailand, where the Erawan concession ended.
Upstream
- U.S. upstream earnings were 45% lower than a year ago, primarily on lower realizations.
- International upstream earnings were 8.6% lower than a year ago due to lower realizations, lower sales volumes, and higher tax charges.
Downstream
- U.S. downstream earnings were almost doubled compared to a year ago, primarily due to higher margins on refined product sales.
- International downstream earnings were higher than a year ago, primarily due to higher margins on refined product sales, partially offset by higher operating expenses.
Financial Highlights
- Net cash provided by operating activities for the quarter totaled $7.2 billion, compared to $8.1 billion a year ago. Free cash flow was $4.2 billion.
- CVX held cash and cash equivalents of $15.67 billion as of March 31, 2023.
“The company’s return on capital employed has been greater than 12 percent for seven consecutive quarters, and the company returned $6.6 billion to shareholders in the first quarter, an increase of 65 percent from last year,” stated Mike Wirth, Chevron’s chairman, and CEO.
Capex
Capital expenditure of $3 billion for the quarter was 55% higher on the year, boosted by higher spending in the United States.
Buybacks & Dividends
“We’re delivering strong financial results and increasing cash returned to shareholders,” said Chevron chief executive Mike Wirth. “The company’s return on capital employed has been greater than 12% for seven consecutive quarters, and the company returned $6.6 billion to shareholders in the first quarter, an increase of 65% from last year.”
Chevron recently increased its targeted annual share repurchase rate to $17.5 billion.
Chevron increased its dividend per share by approximately 6% in the first quarter and shareholder distributions of $6.6 billion, were up 65% from first quarter of 2022.
Outlook
Chevron Chief Executive Officer Mike Wirth said that the company was spending more money to increase future energy supplies.
“We intend to leverage our capital discipline, advantaged assets and financial strength to deliver lower carbon energy to our customers and superior cash distributions to our shareholders,” Mr. Wirth said.
About Chevron
Chevron Corp. is a U.S.-based integrated oil and gas company with worldwide operations in exploration and production, refining and marketing, transportation and petrochemicals. It has large exposure to the Permian and to LNG with the Wheatstone Chevron LNG Facility production starting in Western Australia
The Permian Basin remains a key source of capital flexibility, and it is a key issue behind many analysts’ preference for Chevron versus some of the other majors. Chevron’s liquids-rich upstream segment is likely to benefit from higher crude price realizations. This segment is expected to record higher production volumes on the back of major capital projects including Gorgon, and core developments in the Gulf of Mexico and Permian Basin.
Sources: TradersCommunity, AlphaStreet, PDCE
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