Chevron to Purchase Noble Energy, thus Growing Chevron’s Presence in the Permian Basin

By Tim Shea

Acquisition or Partnership

Chevron Corp. agreed to buy Noble Energy Inc. for about $5 billion in shares.  The takeover is the first major deal since the coronavirus triggered a severe oil slump.  It’s a clear vote of confidence in the future of the U.S. shale industry even as it struggles to adapt to lower crude prices.

The deal values Noble at $10.38 a share, or 0.1191 of a Chevron share, equivalent to a 7.5% premium over Friday’s closing price.  The total enterprise value, including debt, is $13 billion.

The purchase grows Chevron’s presence in the Permian Basin, once the heartland of the U.S. shale boom but now experiencing a sharp reduction in drilling.  It will increase the company’s proved reserves, as reported at the end of 2019, by about 18%.  The transaction has been approved by the boards of both companies and is expected to close in the fourth quarter, subject to regulatory approvals.

Last year, Chevron lost a takeover battle for Anadarko Petroleum Corp.  Occidental Petroleum Corp. won with a higher bid but has subsequently struggled with the large debt pile resulting from the deal.

The two companies highlighted the following benefits from the transaction:

  • Low Cost Acquisition of Proved Reserves and Attractive Undeveloped Resource: Based on Noble Energy’s proved reserves at year-end 2019, this will add approximately 18 percent to Chevron’s year-end 2019 proved oil and gas reserves at an average acquisition cost of less than $5/boe, and almost 7 billion barrels of risked resource for less than $1.50/boe.
  • Strong Strategic Fit: Noble Energy’s assets will enhance Chevron’s portfolio in:
  1. U.S. onshore DJ Basin – New unconventional position with competitive returns that can be further developed leveraging Chevron’s proven factory-model approach.
  2. Permian Basin – Complementary acreage that enhances Chevron’s strong position in the Delaware Basin.
  3. Other – An integrated midstream business and an established position in the Eagle Ford.  International:  Israel – Large-scale, producing Eastern Mediterranean position that diversifies Chevron’s portfolio and is expected to generate strong returns and cash flow with low capital requirements.  West Africa: – Strong position in Equatorial Guinea with further growth opportunities.    
  • Attractive Synergies: The transaction is expected to achieve run-rate operating and other cost synergies of $300 million before-tax within a year of closing.
  • Accretive to Return on Capital Employed, Free Cash Flow, and EPS: Chevron anticipates the transaction to be accretive to ROCE, free cash flow and earnings per share one year after closing, at $40 Brent.


Transaction Details - Total enterprise value of $13 billion includes the net debt and book value of non-controlling interest.  The transaction has been unanimously approved by the Boards of Directors of both companies and is expected to close in the fourth quarter of 2020.  The acquisition is subject to Noble Energy shareholder approval.  It is also subject to regulatory approvals and other customary closing conditions.  The transaction price represents a premium of nearly 12% on a 10-day basis based on the closing stock price on July 17, 2020.  Following closing of the transaction, Noble Energy shareholders will own approximately 3% of the combined company.

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