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Occidental and Anadarko Agree to Merger: What You Need to Know
Occidental Petroleum Corporation and Anadarko Petroleum Corporation have reached a merger agreement that could reshape the U.S. energy industry and accelerate the development of shale oil and gas resources. The $57 billion deal, announced on May 9, 2019, includes Occidental assuming Anadarko`s debt and paying a mix of cash and stock to Anadarko shareholders. Here are some key facts and implications of the occidental anadarko merger agreement.
Why did Occidental buy Anadarko?
Occidental, a Houston-based oil and gas exploration and production company, pursued Anadarko, a similar company also based in Houston, after losing a bidding war for another shale producer, Chevron. Occidental and Anadarko share interests in the Permian Basin, one of the world`s most prolific and profitable oilfields, where both companies have large contiguous acreage and operations. By acquiring Anadarko, Occidental aims to become a leading player in the Permian, with more than 1.4 million net acres and a diverse portfolio of assets that could generate about $10 billion of free cash flow per year by 2021.
What are the terms of the merger agreement?
Under the terms of the agreement, Occidental will pay $59 in cash and 0.2934 shares of its common stock for each share of Anadarko, representing a premium of about 20% over the closing price of Anadarko`s shares on May 8. The total consideration for Anadarko`s shareholders is about $38 billion, while Occidental will assume about $19 billion of Anadarko`s debt, bringing the total deal value to $57 billion. Occidental plans to fund the cash portion of the deal with a combination of its own cash, borrowings, and a $10 billion investment from Berkshire Hathaway, the conglomerate led by Warren Buffett.
What are the benefits and risks of the merger?
The merger could create a stronger and more diversified energy company that combines Occidental`s expertise in enhanced oil recovery and chemicals with Anadarko`s strengths in shale drilling and deepwater exploration. The combined company is expected to have more than 1.2 million barrels of oil equivalent per day of production and proven reserves of 3.4 billion barrels of oil equivalent, making it the largest producer in the Permian and a top ten global oil company. The merger could also generate synergies of about $2 billion per year from cost savings and revenue growth, according to Occidental. However, the merger also involves significant challenges and uncertainties, such as integrating the two companies` cultures, operations, and assets, managing the debt burden, and dealing with potential regulatory and legal issues.
What are the effects of the merger on the energy industry?
The merger could signal a new phase of consolidation and concentration in the U.S. energy industry, which has seen a surge of shale production and a drop in oil prices over the past decade. The merger could also accelerate the trend of big oil companies expanding their presence in shale plays, challenging smaller and mid-sized producers. However, the merger could face opposition from environmental groups, which have criticized fracking and offshore drilling, and from other stakeholders who may be concerned about the social, economic, and geopolitical consequences of a more powerful energy giant. The merger could also face scrutiny from regulators, especially in the context of antitrust and competition laws.
In conclusion, the Occidental-Anadarko merger agreement is a significant development in the U.S. energy sector that reflects the changing dynamics of the industry and the quest for scale, efficiency, and innovation. The merger could create a new leader in shale oil and gas production, but it also poses challenges and risks for the companies, the industry, and the broader society. As the energy landscape continues to evolve, it is important to monitor, analyze, and discuss the implications of such strategic moves.