Mammoth Merger Is Just The Beginning Of Oil And Gas Shakeup

Occidental Petroleum (Occidental) completed its US$55 billion acquisition of Anadarko Petroleum Corp. (Anadarko) in August, formally closing a deal that ranks among the largest acquisitions in oil and gas history.

Included in the treasure trove awarded to Occidental is Anadarko’s nearly a quarter-million acres in the US Permian Basin, which includes some of the richest shale fields in Texas and makes Occidental the Permian Basin’s largest producer, ahead of Chevron and ExxonMobil. In addition, the deal puts Occidental at the top of Colorado’s DJ Basin and among the top producers in the US Gulf of Mexico, where Occidental had zero presence before the acquisition.

While the deal presents large-scale growth opportunity for Occidental, it also brings a mountain of debt. The company took on about US$13 billion in additional debt to finance the deal and it absorbed Anadarko’s debt load of nearly US$17 billion. Some reports show that Occidental’s total debt quadrupled with the deal, reaching nearly US$40 billion. All this comes at a time when many indicators point to a slowing market and when investors are demanding greater spending cuts and higher dividends.

Occidental CEO Vicki Hollub is confident that the acquisition will pan out. “With Anadarko’s world-class asset portfolio now officially part of Occidental, we begin our work to integrate our two companies and unlock the significant value of this combination for shareholders,” said Hollub in a press statement. She contended that Occidental’s execution and efficiency, especially in the Permian, will more than pay for the Anadarko deal in the years ahead, as its practices are applied to Anadarko’s acreage from West Texas to Colorado. Throw in the fact that the land value alone acquired by Occidental is estimated to be US$18 billion, and the company is confident it made a solid investment.

Wall Street sees it differently.

Occidental’s stock fell to a 10-year low after it reached a merger agreement with Anadarko and analysts at Wells Fargo, KeyBanc Capital Markets, and Edward Jones lowered ratings on the company. Rating firms are forecasting a debt downgrade because of the deal, though none expect Occidental will fall into junk bond status.

Hollub told shareholders that she expects to realize US$3.5 billion per year in cost savings and capital spending cuts from the deal and looks forward to applying the company’s Permian Basin expertise to Anadarko’s Texas and Colorado oil fields.

Ultimately, the success of this acquisition will depend on how quickly Occidental can sell off some of Anadarko’s assets and focus on optimizing and integrating the business it keeps.

As of press time, Occidental has already unloaded some of Anadarko’s oil and gas assets outside of the US. Total SA agreed to pay US$8.8 billion for Anadarko assets in Algeria, Ghana, South Africa, and its multibillion-dollar liquefied natural gas project in Mozambique.

Anadarko’s offshore Gulf of Mexico offshore assets, which analysts say provided nearly a quarter of Anadarko’s oil and gas output while consuming just 19% of production spending, are estimated to be worth at least US$6 billion. Considering Occidental has no experience in the Gulf, many are predicting that that business will be on the market soon. And, there’s no shortage of potential buyers — Shell, ExxonMobil, Total, and Chevron would each be very interested in adding those assets to their portfolios.

Occidental’s successful purchase of Anadarko ranks among the top-five largest oil and gas mergers of all time. Now that the deal is final, the shakeup is just getting started.

 

The views and opinions expressed in this article are those of the author and do not necessarily reflect the official policy or position of Third Coast Publishing Group and/or Gas Compression Magazine. (In other words, questions and concerns should be sent directly to the author. Praises and accolades should be sent to company management.)