Occidental challenges Chevron with higher US57b bid for Anadarko

Equipment used to process carbon dioxide, crude oil and water is seen at an Occidental Petroleum Corp enhanced oil recovery project in Hobbs, New Mexico May 3, 2017. — Reuters pic
Equipment used to process carbon dioxide, crude oil and water is seen at an Occidental Petroleum Corp enhanced oil recovery project in Hobbs, New Mexico May 3, 2017. — Reuters pic

NEW YORK, April 25 — Occidental Petroleum launched a campaign yesterday to buy Anadarko Petroleum in a hostile takeover, challenging Chevron's proposed acquisition in a battle over key US shale assets.

Shares of Anadarko surged, while Chevron and Occidental both fell, suggesting investors believe the proposal could launch a bidding war between global heavyweight Chevron and the much smaller Occidental, which is based in Houston.

The latter said it was repeatedly spurned by Anadarko despite offering more money in the period just before the Chevron deal was sealed.

“We were surprised and disappointed that your board did not engage with us” even though Occidental's bids “were significantly higher than the price you accepted from Chevron,” chief executive Vicki Hollub said in a letter to Anadarko's board.

Anadarko's acceptance of the Chevron offer was “unfortunate” as was the decision to do so “without even picking up the phone to speak to us,” she added in the letter, which was released yesterday.

Occidental's bid of US$76 (RM313.54) a share compares to the US$65 offered by larger Chevron, which was approved by the Anadarko board and publicly announced on April 12.

Occidental said its deal is valued at US$57 billion, including debt, compared with US$50 billion in the Chevron deal, including debt.

Anadarko said it would review Occidental's bid, which it called an “unsolicited proposal,” otherwise known as a hostile takeover.

“The Anadarko board has not made any determination as to whether Occidental's proposal constitutes, or could reasonably be expected to result in, a superior proposal under the terms of the Chevron Merger Agreement,” Anadarko said in a statement.

“The Anadarko board expects to respond to Occidental's proposal upon completing its review, and accordingly reaffirms its existing recommendation of the transaction with Chevron at this time.”

Focus on Permian

The bidding contest comes as oil prices are strengthening and highlights the appeal of the shale-rich Permian Basin in Texas in which all three companies are currently active. The area has been central to the US energy revival over the last decade.

Occidental estimated it could achieve US$2 billion in annual savings through economies of scale by combining its holdings with Anadarko's, plus an additional US$1.5 billion in annual capital reductions.

Hollub said the Anadarko deal was potentially "transformational" for Occidental and that it was uniquely well positioned to absorb the assets because of its considerable position in the Permian and its proprietary drilling technology.

Chevron projected US$2 billion in annual savings from its deal, which would give the company a contiguous 121km region to develop.

The advantages of scale in the Permian include having greater clout with drilling companies and suppliers and the capacity to set up more production hubs, which boost efficiency.

Occidental's 2018 revenues were US$18.9 billion, less than half Chevron's and Occidental's US$45.6 billion market capitalisation is only about one-fifth of that of the “supermajor” Chevron.

The competing bids are a mix of cash and stock but the new shares issued by Occidental raise greater concerns about diluting the value of existing shares because the company is smaller, analysts say.

Hollub expressed confidence the company's offer would win support from shareholders.

However, reports the richer bid from Occidental had already been spurned surfaced around the time Chevron's offer was announced and Occidental shares have fallen almost 10 per cent since then.

Mizuho Group analyst Paul Sankey said the drop in Occidental's shares in recent weeks highlighted investor unease over the company's overall direction, including its interest in Anadarko.

“Will Chevron counter? We could see a bump, but equally they might just tough this out. Oxy's bid is by no means a knock out,” Sankey said.

"We believe we could see a US$5 sweeten from Chevron to settle the deal but not a lot more."

But JPMorgan Chase said in a note that Occidental's overall targets suggested the smaller company could be the more efficient producer, adding that “we would not be surprised if Chevron raised its bid.”

Shares of Anadarko surged 11.6 per cent to US$71.40, while Occidental lost 0.6 per cent to US$62.00 and Chevron shed 3.1 per cent to US$118.28. — AFP

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