Chevron to increase US presence with $7.6 billion PDC Energy purchase

  • The agreement increases Chevron production by 240,000 barrels per day
  • Company to increase investment prospects for purchase
  • Chevron shares fall 1%, PDC Energy gains 8%

May 22 (Reuters) – Chevron Corp ( CVX.N ) said on Monday it is expanding its U.S. oil and gas footprint by buying shale producer PDC Energy Inc ( PDCE.O ) in a $7.6 billion stock-and-debt deal .

For Chevron, the second-largest US oil company, the deal will boost production, capital spending and cash flow in the US amid geopolitical tensions following Russia’s invasion of Ukraine last year.

The deal values ​​Denver-based PDC at $72 a share, about a 14% premium to the 10-day average ending Friday. It is expected to close by the end of the year, the companies said.

“It’s a strong investment in our business in the United States,” CEO Michael Wirth told Reuters in an interview.

The company and rivals were criticized last year by US President Joe Biden for not increasing production as fuel prices rose.

Analysts in recent months have questioned management’s ability to counter concerns that the company’s core U.S. shale properties are in decline after poor results in the Permian basin in West Texas and New Mexico last year.

“We expect these concerns about the Permian may linger,” said Biraj Borkhataria, research analyst at RBC Europe.

The acquisition will add 10% to Chevron’s reserves and increase capital spending and free cash flow by about $1 billion within a year of the deal closing.

In morning trading, Chevron lost 1%, while PDC Energy rose 8%.

The acquisition will add 260,000 barrels of oil and gas production per day (boed) combined to Chevron’s production in the Permian and in the DJ Basin spanning Colorado and Wyoming.

The properties it is acquiring are “high-quality inventory,” said Andrew Dittmar, who specializes in M&A at researcher Enverus. The price values ​​the PDC at roughly the current rate of production, Dittmar said, describing the untapped reserves that come with it as “essentially free.”

Executives at San Ramon, Calif.-based Chevron have said since last year that the company was looking for U.S. acquisitions. The company has also recently flagged that it wanted to reduce its cash holdings in a way that would improve shareholder profitability.

“We are buying back shares at a rate of $17.5 billion per year,” Wirth said, adding that the shares exchanged for the properties represent less than two-quarters of share buybacks. “So we would buy back those shares very quickly.”

The company has been under pressure on Wall Street to show it can continue to expand production beyond 2027 at its key shale holdings in the Permian Basin in West Texas and New Mexico.

The deal will increase Chevron’s capital spending by about $1 billion per year, increasing the annual range to $14 billion to $16 billion through 2027, the company said.

The PDC Energy deal is Chevron’s second in three years to bring together operations in Colorado and Wyoming.

Chevron is one of the top producers in the Denver-Julesburg Basin following its acquisition of Noble Energy for $13 billion in 2020.

With the acquisition of PDC, Chevron will add 10% to its proven reserves at an estimated cost of less than $7 per barrel, the company said in a statement.

The oil major has cashed in from last year’s soaring crude prices and had $15.7 billion in cash and cash equivalents at the end of the first quarter, about three times what it needs for operating activities.

Reporting by Arunima Kumar in Bengaluru; Editing by Krishna Chandra Eluri

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