Locally speaking, there has been a bit of a bidding war over the Anadarko Petroleum merger between Chevron and a relatively “small” oil company called Occidental Petroleum. To put it into perspective, Occidental is approximately 1/4th the size of Chevron but has offered $76 Per share, $57 billion dollars, compared to the $65 per share, $50 billion dollars, offered by Chevron.
According to analysts, Anadrako shareholders would prefer to hold Chevron stock. However, Occidental currently claims that they are better suited for the Anadarko wells residing in the Permian Basin. Based on some data from Occidentals CEO, Vicki Hollub, Occidental’s oil wells in the Delaware Basin perform about 74% better than Anadarko’s. Hollub also noted that out of the top 100 wells in the Permian, Occidental drilled 23. However, rivals on that list used ~27% more proppant per well to frack the shale formations. This difference in materials used equates to roughly half a million dollars in savings per well drilled. Ultimately, Chevron has the capital to outbid Occidental if they so choose, but we can expect they will have to pay the price to come out on top when its all said and done.
Anadarko Petroleum Merger Update 04/29/2019:
“Anadarko is resuming its earlier negotiations with Occidental because Anadarko’s board of directors, following consultation with its financial and legal advisors, unanimously determined that the Occidental Proposal could reasonably be expected to result in a “Superior Proposal” as defined in the Chevron Merger Agreement. The Occidental Proposal reflects significant improvement with respect to indicative value, terms and conditions, and closing certainty as compared to any previous proposal Occidental made to Anadarko.”
Anadarko Petroleum Update 05/10/2019:
Anadarko Petroleum announced their entrance into a merger agreement with Occidental Petroleum Corporation. Under this, Occidental will acquire all of the outstanding shares of Anadarko for consideration consisting of $59.00 in cash and 0.2934 of a share of Occidental common stock per share of Anadarko common stock.
Anadarko also announced that prior to the Occidental petroleum merger, the company terminated the previous agreement with Chevron. The result was a billion dollar termination fee.
A conclusion should come later this year, subject to approval by Anadarko shareholders.
Read the update from the Anadarko Website here.
Internationally speaking, there are a couple other things that are worth noting today.
Iraq is speculated to be a top oil producing country by 2030, outpaced only by the United States, Saudi Arabia and Russia. While Iraq’s oil production has nearly doubled this decade, they certainly have some hurdles to overcome. A major hurdle will be increasing water production to keep up with the demand from the energy sector. Potential for natural gas increased alongside their oil production, but Iraq does not have the means to process the current output. This has led to a deficit in natural gas and imports from Iran to meet their power demands. This has led to many issues keeping the lights and air conditioning on during peak seasonal demand. Many different solutions could possibly alleviate these issues. Over the next year, we will see how they handle the issues at hand.
Finally, Let’s talk about Saudi Aramco’s Ghawar field for a moment.
For decades, exact metrics on the Ghawar Field remained closely guarded. All we had was unbridled speculation, however we finally have some numbers to look at and… they may not be as good as previously thought. The Ghawar Field holds a nearly mythical reputation due to its size and vague understanding of its inner workings. Yet, recent data suggests it cannot produce the 5 million barrels per day that was previously thought. In fact, the Ghawar field only produces 3.8 Million barrels per day. As the largest source of crude in Saudi Arabia, it certainly stands out the most in their report.
However the fact remains that Aramco is the world’s most profitable company (Earning ~$111 Billion Dollars last year) and unless error is compounded many times over and/or they are not able to successfully transition to include a more diverse portfolio of energy related products in the coming years, Aramco shows no signs of slowing down or fading away.
If you haven’t already, Check out our previous industry update!
Stay tuned for our May Report!