Houston — Chevron Corp said on Monday it would buy oil and gas producer Noble Energy Inc for about $5 billion in stock, the first big energy deal since the coronavirus crisis crushed global demand for oil and sent crude prices to historic lows.
Chevron, which last year dropped its offer for Anadarko when Occidental Petroleum Corp bid more, has been seen as a financially disciplined oil major best positioned to strike a deal during the downturn. This purchase boosts its investments in U.S. shale and in natural gas with Noble’s flagship Leviathan field in Israel, the largest natural gas field in the eastern Mediterranean. Chevron would be the first oil major to enter the country.
The deal helps diversify Chevron assets, said Tom Ellacott, senior vice president at Wood Mackenzie, adding that Israel “will rebalance the portfolio towards gas and provide a springboard” in the region.
Chevron’s shift to more natural gas output comes as oil companies are under pressure from investors to reduce their carbon footprint. Gas is seen as a cleaner burning fuel that can cut greenhouse gas emissions.
The deal “is a tremendous expression of confidence in the Israeli energy market, and in the continued development and export of natural gas from Israel,” Israel’s Energy Minister Yuval Steinitz said in a statement.
Chevron Chief Executive Officer Mike Wirth characterized the purchase as a way to generate cost savings and add to reserves. “This is nearly 7 billion barrels of resource that is added to our inventory at attractive economics and, we think, good long-term value creation,” Wirth said.
Noble “offers an unique combination of shale as well long-cycle assets,” much as Anadarko would have, said Jennifer Rowland, analyst with Edward Jones.
It is unlikely to spark a wave of consolidation in the industry or pressure other companies to make a deal, she said.
The market can “never rule out a bidding war,” but the smaller scale of this deal – $5 billion versus the $33 billion Chevron had offered for Anadarko – means that other “prospective buyers would find it easier to replicate via other means,” said Pavel Molchanov, analyst with Raymond James.
Noble’s assets will expand Chevron’s shale presence in Colorado and the Permian Basin, the top U.S. shale field, where margins and drilling have been decimated by the collapse in prices.
Chevron, under pressure to expand output before existing Permian production tails off, last year tried to double down on its bet on surging shale output by bidding for Anadarko, but ultimately walked away and instead pocketed a $1 billion break fee.
This spring, oil prices plunged to historic lows, with U.S. crude averaging $20 per barrel as the coronavirus crisis halted travel and decimated fuel demand. While prices have rebounded, they remain depressed, making assets cheaper. Just seven months ago, Noble had a market capitalization of about $12 billion.
Shares of Noble were up about 6% to $10.23, after falling more than 60% this year through Friday’s close. Chevron was down 1.5% to $85.85.
The offer values Noble at $10.38 a share, a 7.5% premium to its Friday close. Including the company’s debt pile, the deal is worth roughly $13 billion.
“This is one big show stopper for significant increase in corporate M&A activity in the U.S. onshore during this downturn,” Artem Abramov, head of shale research at Rystad Energy, said.
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