Energy
Monday, December 11th, 2023 3:24 pm EDT
Key Points
- Occidental Petroleum’s Acquisition: Occidental Petroleum has announced its intent to acquire CrownRock, a major privately held energy producer in the Permian Basin, for $12 billion. This move is part of a broader trend of consolidation in the U.S. energy sector, specifically in the Permian, the largest oil-producing region in the country.
- Strategic Importance of the Acquisition: Occidental CEO Vicki Hollub emphasized the strategic significance of the acquisition, stating that it aims to increase Occidental’s scale in the Midland Basin. The transaction includes adding 170,000 barrels of oil equivalent per day to Occidental’s production and incorporating 1,700 undeveloped locations in the Permian. Hollub mentioned that the increased scale and inventory from CrownRock would also support a dividend increase, with Occidental raising its quarterly dividend from 18 cents to 22 cents a share beginning next year.
- Financial Aspects and Debt Reduction Goals: To finance the acquisition, Occidental will issue $9.1 billion in debt and approximately $1.7 billion in common stock. Despite the additional debt, Occidental aims to reduce its overall debt below $15 billion, focusing on divesting non-core domestic assets. The CEO emphasized that, with the combination of cash flow and divestitures, the debt picture over the next two to three years is expected to be similar to what it would have been without the acquisition. Occidental’s goal is to maintain financial metrics consistent with its strategy, even amid the changing landscape of major deals in the energy sector, such as Exxon Mobil’s acquisition of Pioneer Natural Resources and Chevron’s agreement to purchase Hess. Hollub expressed confidence in Occidental’s ability to breakeven with oil at $40 a barrel and sustain or modestly grow production even in the face of falling oil prices.
Occidental Petroleum has entered into an agreement to acquire CrownRock, a significant privately held energy producer operating in the Permian Basin, for $12 billion. This acquisition reflects the ongoing consolidation trend in the U.S. energy sector, particularly in the Permian, the largest oil-producing region in the country. CrownRock, developing a 100,000-acre position in the Midland Basin, a part of the Permian covering 20 counties in western Texas, contributed to 15% of U.S. crude production in 2020.
The transaction is expected to be completed in the first quarter of 2024 and is set to bolster Occidental’s production by adding 170,000 barrels of oil equivalent per day. It will also include 1,700 undeveloped locations in the Permian. To finance the deal, Occidental will issue $9.1 billion in debt and approximately $1.7 billion in common stock. Occidental’s CEO, Vicki Hollub, highlighted the strategic importance of the acquisition, emphasizing the scale and inventory it brings, enabling the company to enhance its dividend, which will be increased to 22 cents a share from 18 cents a share starting next year.
CrownRock, led by Texas billionaire Timothy Dunn and backed by Houston-based private equity firm Lime Rock Partners, is one of the last major private producers in the Permian alongside Endeavor Resources. Occidental, the ninth-largest energy company in the U.S., with a market capitalization of $49.7 billion and a 26% stake owned by Warren Buffett’s Berkshire Hathaway, sees this acquisition as a move to expand its presence in the Midland Basin.
Notably, this is Occidental’s first major acquisition since its contentious purchase of Anadarko Petroleum for $55 billion in 2019, which led to increased debt and a dispute with activist investor Carl Icahn. Hollub emphasized that the goal is to reduce debt below $15 billion, even with the additional $9.1 billion in obligations from the CrownRock acquisition. Occidental plans to achieve this by divesting non-core domestic assets.
The acquisition of CrownRock follows other major deals in the energy sector, including Exxon Mobil’s $60 billion acquisition of Pioneer Natural Resources and Chevron’s $53 billion agreement to purchase Hess. Despite falling oil prices, Hollub expressed confidence, stating that Occidental expects U.S. crude to average $80 a barrel, attributing the drop in crude prices to record U.S. production. She assured that the company can break even with oil at $40 a barrel, emphasizing its capability to deliver value and sustain or modestly grow production.
For the full original article on CNBC, please click here: https://www.cnbc.com/2023/12/11/occidental-petroleum-to-buy-permian-producer-crownrock-for-12-billion-raise-dividend.html
