A Chevron gas station sign is pictured at one of their retain gas stations in Cardiff, California October 9, 2013. REUTERS/Mike Blake
May 9, 2019
By Jennifer Hiller and Shanti S Nair
HOUSTON (Reuters) – Chevron Corp abandoned its takeover bid for Anadarko Petroleum Corp on Thursday, outmaneuvered by a rival’s higher, $38 billion offer that included more than three times as much cash.
The decision leaves Occidental Petroleum Corp, a company that is one-quarter the size of Chevron, as the likely victor in a contest that again proved the allure of U.S. shale.
Occidental has said it plans to shed most of Anadarko’s non-shale properties in a deal that would cement its position in the Permian Basin of West Texas and New Mexico, the top U.S. shale field.
Chevron declined to revise its offer after Occidental boosted the cash portion of its $76 per share bid and Anadarko’s board deemed it a superior offer. Chevron, the No. 2 U.S. oil producer, stands to receive a $1 billion breakup fee.
“Winning in any environment doesn’t mean winning at any cost,” Chevron Chief Executive Officer Michael Wirth said. “Cost and capital discipline always matter, and we will not dilute our returns or erode value for our shareholders for the sake of doing a deal.”
Analysts said they do not expect another bidder to emerge.
“The industry is trying to show investors more capital discipline and if another suitor comes in that would be significantly counter to most companies’ strategies,” analysts at RBC Capital Markets said in a note on Thursday.
Investors have sold off shares of oil companies that increased spending on drilling, punishing them for not using the cash to finance shareholder returns. They have called for capital discipline, defined as increasing production by 4 percent a year and maintaining a 4 percent dividend.
One result of that approach: The value of U.S. oil and gas mergers and acquisitions fell to a 10-year low in the first quarter, driven by investors selling off shares in companies that spent more on drilling than on buybacks and dividends.
Shares of Occidental were down 5.8 percent at $56.70 in early trading on Thursday, while Anadarko shares were down 2.8 percent at $73.72. Chevron shares were up 3 percent at $121.
PERMIAN BASIN
The brief contest for Anadarko underscored the value of its assets in the Permian Basin. The vast shale field holds oil and gas deposits that can produce supplies for decades using low-cost drilling techniques.
The region’s soaring production has propelled U.S. oil production to 12 million barrels per day, more than Russia or Saudi Arabia.
Occidental said it looks forward to signing a merger agreement. The deal still faces antitrust reviews.
The company has outmaneuvered Chevron by gaining cash and allies. It won a $10 billion investment from Warren Buffett’s Berkshire Hathaway Inc and struck a deal with French oil giant Total SA to take most of Anadarko’s international assets, including a liquefied natural gas project in Mozambique. Total agreed to pay $8.8 billion for the assets once the merger goes ahead.
(Reporting by Shanti S Nair in Bengaluru and Jennifer Hiller in Houston; Writing by Gary McWilliams; Editing by Sriraj Kalluvila, Saumyadeb Chakrabarty and Paul Simao)
