Chevron Corporation announced that it has entered into a definitive agreement with PDC Energy to acquire all of the outstanding shares of PDC in an all-stock transaction valued at $6.3 billion, or $72 per share. And 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 purchase of PDC provides Chevron with high-quality assets expected to deliver higher returns in lower carbon intensity basins in the United States. And PDC brings strong free cash flow, low breakeven production and development opportunities adjacent to Chevron’s position in the Denver-Julesburg (DJ) Basin and additional acreage to Chevron’s leading position in the Permian Basin.
Deal Benefits
— 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).
— 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 to over 1 billion BOE 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.
— Chevron expects to increase capex by about $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.
— The deal is expected to achieve run-rate cost synergies of around $100 million before tax within a year of closing.
Deal Details
— This acquisition consideration is structured with 100 percent stock utilizing Chevron’s equity. And in the aggregate, upon closing of the transaction, Chevron will issue approximately 41 million shares of common stock. The total enterprise value of $7.6 billion includes net debt.
— The deal has been unanimously approved by the Boards of Directors of both companies and is expected to close by year-end 2023. And the acquisition is subject to PDC shareholder approval. It is also subject to regulatory approvals and other customary closing conditions.
— The transaction price represents a premium of 14% on a 10-day average based on closing stock prices on May 19, 2023.
KEY QUOTES:
“PDC’s attractive and complementary assets strengthen Chevron’s position in key U.S. production basins. This transaction is accretive to all important financial measures and enhances Chevron’s objective to safely deliver higher returns and lower carbon. We look forward to welcoming PDC’s team and shareholders to Chevron and continuing both companies’ focus on safe and reliable operations.”
— Chevron Chairman and CEO Mike Wirth
“The combination with Chevron is a great opportunity for PDC to maximize value for our shareholders. It provides a global portfolio of best-in-class assets. I look forward to blending our highly complementary organizations, and I’m excited that PDC’s assets will help propel Chevron toward our shared goal for a lower carbon energy future.”
— Bart Brookman, PDC President and CEO
