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Occidental Petroleum has agreed to acquire CrownRock, one of the most sought-after US private shale oil producers, in a deal valued at about $12bn, including debt.
The Houston-based company backed by Warren Buffett beat competition from rival bidders that had also tried to snap up CrownRock’s shale assets.
The deal is the latest in a series of transactions in the oil and gas sector as large energy companies seek to capitalise on their strong balance sheets and equity value to buy smaller rival assets.
This year, ExxonMobil announced a $60bn deal to buy shale driller Pioneer Natural Resources, a move that was followed swiftly by Chevron taking over Hess for $53bn.
Occidental’s most recent major transaction was criticised for being poorly timed after it took on huge debt to buy Anadarko Petroleum for $57bn in 2019, just before the Covid-19 pandemic caused oil prices to plunge to near zero.
But a rebound in oil prices has enabled Oxy to pay down debt and driven a surge in its share price, which helped the company’s chief executive, Vicki Hollub, fend off an activist investor attack from Carl Icahn.
Oxy said it would fund the CrownRock acquisition with a combination of cash and shares and intended to take on $9.1bn of new debt.
A successful takeover of CrownRock would cement Oxy’s position as the second-largest player in the prolific Permian Basin in the US south-west, where it produced 968,000 barrels of oil equivalent a day in August, according to consultancy Rystad Energy. Exxon’s deal with Pioneer, the Permian’s top producer, would put the combined group in the top spot.
Andrew Dittmar, analyst at Enverus Intelligence Research, said the deal promoted Oxy into the “major leagues” in the US shale patch but came at a high cost because the company is paying mainly in cash, in contrast to Exxon’s all-stock purchase of Pioneer.
Oxy’s debt will rise to about $28bn following the closure of the deal, up from $17.9bn currently. The company has said it plans to sell $4.5bn-$6bn in non-core assets and use excess cash to pay down debt.
In its first year, the deal is expected to generate $1bn in free cash flow — based on the benchmark US oil price remaining at $70 a barrel — plus about 170,000 barrels of oil equivalent a day.
“We found CrownRock to be a strategic fit, giving us the opportunity to build scale in the Midland Basin and positioning us to drive value creation for our shareholders with immediate free cash flow accretion,” Hollub said on Monday.
Occidental’s stock price has risen almost 500 per cent since hitting a 20-year low during the oil market upheaval of 2020.
CrownRock is one of the leading private operators in the sprawling Permian Basin of Texas and New Mexico, the US’s most prolific oilfield. It is led by Tim Dunn, a prominent conservative political donor, and backed by the private equity group Lime Rock Partners.
Alongside rivals Endeavor Energy Resources and Mewbourne Oil, CrownRock has long been viewed as a prime target for bigger groups looking to scale up their operations in the oilfield.
Like those peers, CrownRock has significantly increased production since 2019. Its private status has left it free to put rigs in the field, while Wall Street has demanded a more cautious approach from publicly listed groups.
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