- The deal boosts Chevron’s production by 240,000 barrels per day
- The company raises its capital expenditure expectations when purchasing
- Chevron shares fall 1%, PDC Energy gains 8%
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 geopolitical tensions in the wake of Russia’s invasion of Ukraine last year.
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.
“It’s a solid investment in our US business,” CEO Michael Wirth told Reuters in an interview.
The company and competitors were criticized last year by US President Joe Biden for not increasing production as fuel prices rose.
Analysts have in recent months been questioning management’s ability to address concerns that the company’s core US shale properties are declining following 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 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.
In morning trading, Chevron lost 1%, while PDC Energy rose 8%.
The acquisition will add a combined 260,000 barrels of oil and gas production per day (boed) to Chevron’s production in the Permian and in the DJ Basin that spans Colorado and Wyoming.
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.
“We buy back stocks at a rate of $17.5 billion annually,” Werth 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.
The PDC Energy deal is Chevron’s second in three years to ramp up operations in Colorado and Wyoming.
Chevron is one of the largest producers in the Denver-Jolesburg basin after its $13 billion acquisition of Noble Energy in 2020.
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.
The oil major cashed in on soaring crude prices last year and held $15.7 billion in cash and cash equivalents at the end of the first quarter, three times what it needed for operating activity.
Additional reporting by Arunima Kumar in Bengaluru; Editing by Krishna Chandra Elori
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