The oil giant Chevron Corp. said on Monday it would buy Noble Energy Inc in a $5 billion all-stock deal, bolstering its shale presence as a plunge in crude prices have made assets cheaper.
The deal, the largest in the U.S. energy sector this year, comes more than a year after Chevron abandoned its offer for Anadarko Petroleum Corp, outmaneuvered by Occidental Petroleum Corp’s higher bid.
Oil prices plunged to historic lows in April as the coronavirus crisis decimated demand. While prices have recovered from their lows, they remain depressed, making assets cheaper, as a new surge of COVID-19 cases threaten to stall recovery.
The deal will also give Chevron access to Noble’s flagship Leviathan field, the second largest natural gas field in the Eastern Mediterranean, which began producing natural gas late last year. Noble is also operator of the offshore block 12 in Cyprus.
Shares of Noble jumped more than 10% premarket.
The offer values Noble at $10.38 a share or 0.12 Chevron share, a 7.5% premium to Noble’s Friday close. The deal would value Noble at roughly $13 billion, including debt.
Noble’s assets will expand Chevron’s presence in the DJ Basin of Colorado and the Permian Basin across West Texas and New Mexico. The deal would yield potential annual cost savings of $300 million.
Noble shareholders will own about 3% of the combined company.
The deal will add to Chevron’s free cash flow and earnings per share one year after closing, at $40 Brent, Chevron said.
“Our strong balance sheet and financial discipline gives us the flexibility to be a buyer of quality assets during these challenging times,” Chevron CEO Michael Wirth said in a statement. “This is a cost-effective opportunity for to acquire additional proved reserves and resources.”
The combination with Chevron is a compelling opportunity to join an admired global, diversified energy leader with a top-tier balance sheet and strong shareholder returns,” said David Stover, Noble Energy’s Chairman and CEO. “Over the last few years, we have made significant progress executing our strategic objectives, including driving capital efficiency gains onshore, advancing our offshore conventional gas developments and significantly reducing our cost structure. As we looked to build on this positive momentum, the Noble Energy Board of Directors and management team conducted a thorough process and concluded that this transaction is the best way to maximize value for all Noble Energy shareholders.
“Chevron (is) taking advantage of its strong relative performance versus the U.S. exploration and production companies and capitalizing on the downturn to buy into some high quality assets,” said Anish Kapadia, head of London-based independent oil and mining advisory Palissy Advisors.