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There Is Always A Bigger Fish - Chevron VS. Occidental Petroleum

Chevron VS OXY - Texas Flange

 

This month, rather than boring you all with minor changes in statistics, I shall bring some current events to your attention, if they are not already on your radar.

Locally speaking, there has been a bit of a bidding war for Anadarko Petroleum between Chevron and a relatively “small” oil company called Occidental Petroleum. To put it into perspective, data suggests that Occidental is approximately 1/4th the size of Chevron but has offered $76 Per share (Or $57 BILLION dollars) compared to the $65 per share (Or $50 BILLION dollars) offered by Chevron. According to analysts, Anadrako shareholders would prefer to hold Chevron stock, but Occidental currently claims that they are better suited and can get the “best results” from 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, 23 were drilled by Occidental. 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 by Occidental compared to their rivals.  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 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, has 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.” 

Source: http://investors.anadarko.com/2019-04-29-Anadarko-Intends-To-Resume-Negotiations-With-Occidental

Anadarko Petroleum Update 05/10/2019:

Anadarko Petroleum announced their entrance into a merger agreement with Occidental Petroleum Corporation under which 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 merger, the company terminated the previous agreement with Chevron resulting in a billion dollar termination fee.

The transaction is expected to close late this year, subject to approval by Anadarko shareholders, approvals closing conditions.

To read the update from the Anadarko Website: 

http://investors.anadarko.com/2019-05-09-Anadarko-Agrees-To-Be-Acquired-By-Occidental


 

Internationally speaking, there are a couple other things that are worth noting today.

Iraq is speculated to be one of the top oil producing countries by 2030, outpaced only by the United States, Saudi Arabia and Russia. While Iraq’s oil production has nearly doubled in the last decade, they certainly have some hurdles to overcome before that projection becomes reality. A major hurdle will be increasing water production to keep up with the demand from the energy sector. Additionally, while the potential for natural gas has increased with their oil production, currently Iraq is not equipped well enough to capture and process the current output. This has led to a deficit in natural gas and has led to importing large amounts from Iran to meet their power demands. This has led to many issues keeping the lights and air conditioning on during peak seasonal demand. There are many solutions being suggested to alleviate these issues, however we will have to check back in the future to see what progress has been made.

 

Finally, Let’s talk about Saudi Aramco’s Ghawar field for a moment.

For decades, exact metrics on the Ghawar Field have been closely guarded leading to unbridled speculation, however we finally have some numbers to look at and… they may not be as good as previously thought. While the Ghawar Field has been revered as almost “mythical” based on its size and vague understanding of its inner workings, recent data suggest it cannot produce the 5 million barrels per day that was previously thought, and in fact only produces 3.8 Million barrels per day.  With this field being 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. 

 

While you're here, check out some of the other great stuff Texas Flange has to offer like our catalog or online drawings!

if you havent already, Check out last months report!

Stay tuned for our May Oil Report!

 

Other Sources:

https://www.cnbc.com/2019/04/24/chevron-may-sweeten-offer-for-anadarko-after-rival-occidental-bid.html

https://www.iea.org/publications/iraqenergyoutlook/

https://oilprice.com/Energy/Crude-Oil/Aramcos-Mythical-Ghawar-Field-Could-Be-Its-Weak-Spot.html

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