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How Will Chevron Benefit from Its Anadarko Acquisition?

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May. 7 2019, Published 8:58 a.m. ET

Chevron’s benefits

Anadarko Petroleum (APC) has determined Occidental Petroleum’s (OXY) revised bid to be superior to Chevron’s (CVX). Chevron must now respond by May 10, 2019.

However, if Chevron is successful in acquiring Anadarko, then its upstream production and reserves will rise. Chevron’s production stood at 3.04 MMboepd (million barrels of oil equivalent per day) in the first quarter. If Anadarko would have been part of Chevron, their combined volumes would have stood at 3.74 MMboepd.

ExxonMobil’s (XOM), Royal Dutch Shell’s (RDS.A), and BP’s (BP) production volumes stood at 3.98 MMboepd, 3.75 MMboepd, and 2.66 MMboepd, respectively, in the first quarter.

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Anadarko’s acquisition would also add DJ Basin assets, Delaware Basin acreage, and Gulf of Mexico resources to Chevron’s portfolio. The acquisition would also add its liquefied natural gas resources in Mozambique. The DJ Basin would bring in an already built infrastructure and resources with low royalties. Further, Chevron could use its infrastructure to gain operational efficiency in the Delaware Basin. Also, the Gulf of Mexico asset base could lead to tie-back opportunities, higher cash margins, and operational synergies for Chevron.

Developing midstream network

The acquisition would also provide Chevron with midstream assets from Western Midstream Partners (WES). The assets would be well suited to the company’s combined upstream portfolio. It would be able to leverage these assets to generate operational efficiency and synergies.

Enhance financial strength

The acquisition is supposed to be accretive to the company at a Brent oil price level of $60 per barrel after one year of its closing. It’s also expected to create synergies of ~$2 billion on an annual run-rate basis, which would include operational synergies of $1 billion and another $1 billion worth of capex synergies.

Chevron plans to divest ~$15 billion–$20 billion worth of assets in 2020–2022. The proceeds are expected to be used to reduce debt and enhance share buybacks to ~$5 billion per year.

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