Chevron expands position in Permian basin with $6.3 billion PDC Energy acquisition
(WO) – Chevron Corporation has entered into a definitive agreement with PDC Energy, Inc. to acquire all of the outstanding shares of PDC in an all-stock transaction valued at $6.3 billion, or $72 per share. Based on Chevron’s closing price on May 19, 2023, and under the terms of the agreement, PDC shareholders will receive 0.4638 shares of Chevron for each PDC share. The total enterprise value, including debt, of the transaction is $7.6 billion.
The acquisition of PDC provides Chevron with high-quality assets expected to deliver higher returns in lower carbon intensity basins in the United States. PDC brings strong free cash flow, low breakeven production and development opportunities adjacent to Chevron’s position in the Denver-Julesburg (DJ) basin, as well as additional acreage to Chevron’s leading position in the Permian basin.
“PDC’s attractive and complementary assets strengthen Chevron’s position in key U.S. production basins,” said Chevron Chairman and CEO Mike Wirth. “This transaction is accretive to all important financial measures and enhances Chevron’s objective to safely deliver higher returns and lower carbon.”
Transaction benefits
Accretive to earnings per share, free cash flow and ROCE: Chevron anticipates the transaction to be accretive to all key financial measures within the first year after closing and to add about $1 billion in annual free cash flow at $70 per barrel Brent and $3.50 per Mcf Henry Hub (approximate 2024 futures prices as of May 2023).
Strong strategic fit: Increases Chevron’s proved reserves by 10% at an acquisition cost under $7 per barrel of oil equivalent (BOE).
DJ basin: 275,000 net acres adjacent to Chevron’s existing operations that add over 1 Bboe of proved reserves in highly economic locations and enable capital and operational synergies.
Permian basin: 25,000 net acres that are held by production and will be integrated into Chevron’s existing capital efficient development operations.
Capital expenditures: Chevron expects to increase capex by roughly $1 billion per year, raising its guidance range to $14 to $16 billion through 2027, after realizing about $400 million in capex efficiencies post-closing.
Operational expenditures: The transaction is expected to achieve run-rate cost synergies of around $100 million before tax within a year of closing.
The acquisition consideration is structured with 100% stock utilizing Chevron’s equity. In aggregate, upon closing of the transaction, Chevron will issue approximately 41 million shares of common stock. Total enterprise value of $7.6 billion includes net debt.
The transaction has been unanimously approved by the Boards of Directors of both companies and is expected to close by year-end 2023. The transaction price represents a premium of 14% on a 10-day average based on closing stock prices on May 19, 2023.
