It was only a week or two ago that Anadarko Petroleum Corporation agreed to sell itself to Chevron Corporation in a $33 billion. But this past Sunday, the US oil and gas exploration and production company has shifted gears and, it seems, is now in negotiations to sell itself to Occidental Petroleum Corporation.
This highly competitive bidding war highlights the immense value of its assets in the highly lucrative Permian Basin along West Texas and New Mexico. The expanse of shale fields is home to enough oil and gas deposits to produce decades of supply, using cost-effective drilling strategies.
Apparently Anadarko’s board of directors has come to the decision that Occidental’s $38 billion cash-and-stock bid could eventually lead to a deal that would actually be better than the present one with Chevron. Chevron had exclusivity in its deal with Anadarko, so they were not able to engage with Occidental, but this realization now leads to Anadarko kicking off negotiations with Occidental to pursue a deal.
That said, there is no way to know for sure if Occidental—which was in contention for Anadarko before the Chevron bid—will manage to secure this deal. Should it manage, however, Chevron will get the chance to match the new offer. But then if Chevron is not able to make a competitive offer over Occidental, Anadarko will have to pay Chevron a $1 billion break-up fee.
So what would be worth taking that risk?
Acquiring Anadarko would add as much as a quarter of a million acres of Permian shale basin to Occidental’s current holdings. This would double its global and gas production to approximately 1.4 million barrels [of oil equivalent] per day. In addition, Occidental’s bid is valued at half cash and half internal shares (at $76 per share); Chevron’s deal with 25 percent cash with the rest in stock (at $65 per share).
All this in mind, Occidental shareholders still have to approve the deal, which will require a vote. And, knowing this, Chevron’s proposal is far more likely because it will not require such a vote. Either way, Anadarko shareholders will get a chance to vote on the company’s sale, too.