Chevron Corp. is buying oil and gas producer Noble Energy Inc. for an estimated $5 billion in stock, making it the largest energy deal since the COVID-19 pandemic hit fuel demand all over the world and sent prices crashing down to historic lows.
The historic oil crash have dampened shares of a lot of energy companies, making them enticing targets for firms that have weathered the storm and have resources to make nifty buys. One of those companies is Chevron, which ended the first quarter with $8.5 billion after taking back its $33 billion bid for Anadarko last year and then being among the first big oil companies to curb spending amidst the pandemic.
The transaction augments Chevron’s investments in United States shale. It also allows them to get its hands on Noble’s flagship Leviathan field — which is the largest natural gas field in the Eastern Mediterranean — located off the shore of Israel. This landmark transaction also makes Chevron the very first oil major to penetrate Israel.
Chief Executive Officer Mike Wirth was quoted as saying, “We certainly are mindful of the fact that there are political differences and tensions” between Israel and neighbors. Chevron also has business including Saudi Arabia, Kuwait, Qatar and the Kurdish region of Iraq.
Wirth emphasized that Chevron was “apolitical” and “a commercial actor” in the area. “We engage with all of our different stakeholders as we go through something like this,” Wirth declared. However, he stopped short of detailing the timing of discussions with other partner governments.
Israel’s Energy Minister Yuval Steinitz described the deal as “a tremendous expression of confidence in the Israeli energy market.”
The Israeli assets “will rebalance the portfolio towards gas and provide a springboard” in the area, shared Tom Ellacott who functions as the senior vice president at Wood Mackenzie. Oil companies have been under a lot of pressure to lessen their carbon footprint with gas being seen as fuel that burns cleaner.
Just last year, Chevron withdrew its offer for Anadarko after Occidental Petroleum Corp. put up a sizable offer. According to industry analyst, Jennifer Rowland, Noble “offers an unique combination of shale as well long-cycle assets,” much as Anadarko would have. She added that she believed the deal was not likely to lead to a wave of consolidation.
Another analyst, Pavel Molchanov, exclaimed that a bidding war for Noble was also not likely, taking note of the difference in scale between the two deals. Chevron is ponying up $5 billion for Noble which is paltry compared to the $33 billion Chevron it had placed on the table for Anadarko. Molchanov added that “prospective buyers would find it easier to replicate via other means.”
Chevron’s purchase of Noble will give the company a much larger presence in the shale patches of Colorado and the Permian Basin, which is a top-notch U.S. shale field. The company had long wanted to expand to that area but was under immense pressure to show how it would do that when current Permian assets have now been depleted. Chevron’s bid for Anadarko last year was a bid to augment Permian production but Chevron eschewed that plan and chose to pocket a $1 billion break fee.