By Cara Lombardo and Christopher M. Matthews 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (July 21, 2020).

Chevron Corp. agreed to a deal to buy Noble Energy Inc. for about $5 billion, in what would be the largest oil-patch tie-up since the coronavirus pandemic delivered a shock to the industry.

The all-stock takeover values Noble at $10.38 a share or 0.1191 Chevron share. Chevron said Monday that would represent a roughly 7.6% premium over Noble's Friday closing price of $9.65 and nearly 12% based on a 10-day average. Including Noble's hefty debt load, the deal would be valued at roughly $13 billion.

The Wall Street Journal first reported the deal was imminent earlier Monday.

Chevron Chief Executive Mike Wirth said in an interview that Noble's assets have low operating costs and require little near-term investment, preserving Chevron's ability to navigate global economic uncertainty.

"The downturn in energy prices and demand have put pressure on a lot of different companies in our industry," Mr. Wirth said. "This is an opportunity to bring together two companies and have a stronger company, I think, coming out of it."

Noble, based in Houston, is an independent oil-and-gas producer with U.S. and international operations. Buying the company would expand Chevron's presence in the DJ Basin of Colorado and Permian Basin, which spans West Texas and New Mexico. It would also give San Ramon, Calif.-based Chevron, which has a market value of $163 billion, assets in the eastern Mediterranean and West Africa and yield potential annual cost savings of $300 million, according to Chevron.

Noble has about 92,000 acres in the Permian, the largest U.S. oil field, and much of that land is near Chevron's existing assets, according to energy analyst Enverus. Chevron has prioritized the Permian for future investment to increase oil production.

Noble's natural-gas projects in the eastern Mediterranean are also a key component of the deal, say analysts. Those assets will supply natural gas to Israel, Egypt and Jordan, and signal a long-term bet on gas demand by Chevron as countries shift away from coal-powered electric generation, according to Enverus.

Chevron's planned $5 billion purchase is the largest U.S. energy M&A deal in 2020 thus far, according to Dealogic. Earlier this month, Berkshire Hathaway Inc. agreed to buy Dominion Energy Corp.'s natural-gas storage and transmission network for $4 billion, excluding debt.

The Chevron deal for Noble is one of the first signs of life in energy-sector deal-making since oil prices plummeted in March as a result of widespread shutdowns and travel bans. Futures contracts for West Texas Intermediate -- the U.S. bellwether -- briefly entered negative territory in April. While prices have partly recovered and stand at about $40.47 a barrel, the sudden crash sent several energy companies spiraling downward.

More than 20 North American oil producers have filed for bankruptcy this year, according to law firm Haynes & Boone LLP, and dozens more are expected to follow suit if oil prices stay around current levels.

Small and midsize oil-and-gas companies have performed poorly in recent years and faced investor pressure to slow growth and deliver more consistent profits and cash flow. That has fed expectations of a potential wave of mergers as stronger players snap up weaker rivals.

Mr. Wirth said investors are clamoring for consolidation, but the industry needs responsible deal-making that can generate returns. Despite a sizable war chest, Mr. Wirth indicated Chevron is unlikely to go on a buying spree in the short-term and is instead focused on an ongoing internal restructuring and integrating Noble.

"This deal positions us to continue to weather an uncertain future and deliver dividends to our shareholders," Mr. Wirth said.

Noble is Chevron's first big strategic move after walking away from a high-profile bidding war for Anadarko Petroleum Corp. last year. Chevron was outbid by Occidental Petroleum Corp., which paid roughly $38 billion for Anadarko with help from Warren Buffett. Occidental has been languishing under a roughly $40 billion debt load, which it has been taking steps to lessen.

The two rivals had coveted Anadarko's assets in the heart of the oil-rich Permian. After Occidental's offer was deemed superior, Chevron's Mr. Wirth said his company opted to accept the $1 billion termination fee rather than make a higher offer, citing a focus on discipline.

Major oil companies have been eyeing increased acreage in the Permian, partly because its geology makes it one of the least expensive places in the U.S. to produce oil via fracking. Production in the area was booming and helped lift U.S. crude production to record levels before the pandemic shriveled global demand for oil by more than 20% this spring.

Credit Suisse Group AG was the financial adviser to Chevron and Paul, Weiss, Rifkind, Wharton & Garrison LLP was its legal adviser. JPMorgan Chase & Co. was the financial adviser to Noble Energy and Vinson & Elkins LLP was its legal adviser.

Write to Cara Lombardo at cara.lombardo@wsj.com and Christopher M. Matthews at christopher.matthews@wsj.com

 

(END) Dow Jones Newswires

July 21, 2020 02:47 ET (06:47 GMT)

Copyright (c) 2020 Dow Jones & Company, Inc.
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