In an incredible move, oil giant Chevron Corp has decided to strengthen its footprint in the US oil and gas industry by divvying $7.6 billion for acquiring rival shale producer PDC Energy Inc. Chevron’s investment is a stock-and-debt transaction that will boost the oil major’s emplacement in two major oil regions: the Permian Basin in Texas and the Denver-Julesburg Basin in Colorado and Wyoming. The Chevron Colorado oil deal will increase the company’s capital expenditures, production, and cash flow in the US in the midst of geopolitical tensions over energy supply due to the Russia-Ukraine conflict.
Like its contemporaries, Chevron, the second-largest US oil firm is chock-full with cash inferable to 2022’s dramatic surge in oil prices. Chevron’s acquisition of Colorado’s oil industry honeypot PDC is unfolding at a time when the major companies in the oil industry are coming to grips with the allocation of cash inflows following the heightened oil and gas prices.
However, it is interesting to note that Chevron is also under duress to prove its long-term growth plans (post-2027) to the indefatigable Wall Street as several of its key shale holdings approach peak production.
Chevron Colorado Oil Deal: PDC Energy Acquisition
In contrast to the exuberant days of America’s shale opulence in the past decade, Chevron’s $7.6 billion PDC Energy deal reflects a conservative approach, much analogous to their premium purchase of Noble Energy during the historic oil demand crisis in mid-2020. Chevron became one of the top producers in the Denver-Julesburg Basin after its $13 billion acquisition of Noble Energy.
Chief Executive Michael Wirth echoed Chevron’s investment in Colorado’s oil industry as an indomitable move.
“It’s a strong investment in our business in the US.”
The US administration cast aspersions on American oil majors for not amplifying output in the United States due to the spike in fuel prices last year. Wirth reiterated Chevron’s Colorado oil deal aligning consistently with those snags, whilst adding value to shareholders. He also expressed that the acquisition is expected to generate an additional $1 billion in annual cash flow and yoke 1 billion barrels of proved reserves.
The Permian Basin is the most prolific onshore play in America and major oil companies including Chevron have faced numerous challenges over productivity over the past year.
Major oil companies have been actively seeking smaller competitors to acquire as most face difficulties with well productivity – signaling that the industry may have likely exhausted many of its best wells.
How Much Will Chevron’s Oil Business Upsurge After PDC Energy Acquisition?
Chevron’s Colorado oil deal demonstrates that the pursuit of mergers and acquisitions by companies is beginning to culminate in actual deals. The oil giant stated that Chevron’s $7.6 billion acquisition of PDC would expand its oil-equivalent proved reserves by 10 percent at the cost of nearly $7 per barrel.
The deal would also ensure free cash flow of about $1 billion within a year of the deal closing while raising its annual range to $14 – $16 billion through 2027.
Chevron’s investment in Colorado’s oil industry would prove fruitful, making its operations in Colorado one of its top five business assets in terms of production.
PDC Energy produces about 25,000 barrels per day in the Permian basin, which will result in a collective of 260,000 barrels of oil and gas production per day.
“We’re repurchasing shares at a rate of $17.5 billion per year because shares exchanged for the properties represent less than two-quarters of share repurchases.”
Following a period of lower profits, Chevron’s primary competitor Exxon Mobil also made a considerably smaller deal by selling assets in North Dakota’s Bakken Shale to Chord Energy for $375 million in cash.
Wirth has affirmed that Chevron’s Colorado deal is not one of its last. The company will keep evaluating other potential acquisitions that will strategically fit with Chevron’s portfolio and create value for shareholders.
