Chevron boosts the US presence with the $7.6 billion purchase of energy company BDC

  • Deal to increase Chevron DJ basin production by 260,000 b/d
  • The company raises its capital expenditure expectations when purchasing
  • Chevron shares fall less than 1% and PDC Energy gains 9%

May 22 (Reuters) – Chevron Corp (CVX.N) said on Monday it is increasing its presence in US oil and gas by acquiring shale producer PDC Energy Inc in a $7.6 billion equity and debt deal.

For Chevron, the second largest US oil company, the deal will increase its production, capital expenditures and cash flow in the United States amid global geopolitical tensions over energy supplies after Russia’s invasion of Ukraine last year.

“It’s a solid investment in our US business,” CEO Michael Wirth told Reuters in an interview.

Major US oil companies have come under fire from President Joe Biden for not increasing production in the US as fuel prices rose to consumers last year. Wirth said the deal is in line with those calls, while adding shareholder value.

Analysts have in recent months been questioning Chevron’s ability to counter concerns that the company’s core US shale properties are declining after poor performance in the Permian Basin of West Texas and New Mexico last year.

“We expect these concerns about the Permian to continue,” said Biraj Purkhataria, research analyst at RBC Europe.

The deal values ​​Denver-based PDC at $72 a share, about a 14% premium to its 10-day average ending Friday. Both companies said it is expected to close by the end of the year.

The acquisition would add 10% to Chevron’s reserves and raise its capital expenditures and free cash flow by approximately $1 billion within a year of the deal closing.

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In morning trading, Chevron lost less than 1%, while PDC Energy rose 9%.

Wirth said the acquisition will add 260,000 barrels of oil and gas production per day (boed) to Chevron’s production in the DJ basin, making its Colorado operations one of the company’s five largest business assets by production.

PDC Energy produces about 25,000 barrels per day in the Permian Basin, with Chevron delivering 700,000 barrels of oil.

The properties it is acquiring are “high-quality stock,” said Andrew Dittmar, a mergers and acquisitions specialist at researcher Envirus. Price values ​​PDC at its current production rate, Dittmar said, describing the untapped reserves that come with it as “essentially free.”

San Ramon, California-based Chevron executives say since last year the company has been looking for US acquisitions. The company has also recently indicated its desire to reduce its cash stock in a way that will enhance shareholder profitability. Repurchase guidelines have been kept unchanged.

“We buy back stocks at a rate of $17.5 billion a year,” Wirth said, adding that real estate-traded shares account for less than two quarters of share buybacks. “So we’re going to buy those shares back very quickly.”

The company has been under pressure on Wall Street to show it can continue to expand production beyond 2027 at its major shale holdings in the Permian Basin of western Texas and New Mexico.

The company said the deal would increase Chevron’s capital spending by about $1 billion annually, raising its annual range to $14 billion to $16 billion through 2027.

Chevron is one of the largest producers in the Denver-Jolesburg basin after its $13 billion acquisition of Noble Energy in 2020.

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The company said in a statement that with the acquisition of PDC, Chevron will add 10% to its proven reserves at an expected cost of less than $7 per barrel.

Wirth said the deal does not preclude the company from evaluating other potential acquisitions.

“We never stopped looking,” Wirth said. “We’re looking for things that fit strategically into our portfolio and that create shareholder value.”

Additional reporting by Arunima Kumar in Bengaluru; Editing by Krishna Chandra Elori

Our standards: Thomson Reuters Trust Principles.

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