Thursday , April 22 2021

US oil companies are trying to conquer Perm basin

Figure 1

Means in the Perm basin – like the Iron Throne of the Game of Thrones in the US oil industry: everyone is eager to win this trophy. Oxidant Petroleum, which is the largest owner of the drilling rights in the Perm basin, decided to strike in order to expand its "property", offering Anadarko Petroleum $ 55 billion in an effort to stop Chevron's acquisition, which is ready to pay 50 billion dollars.

In the fight, the party that will manage to persuade shareholders that it will become the best owner of Anadarco's assets will likely win.

Vicky Holab

For Western CEO Wiki Holab, this proposal was a brave but very difficult step. It should justify the need for an agreement not only for Anadorco's investors, but also for its own investors. In accordance with the terms of the offer, which is 50/50 in cash and shares, Anadarko's shareholders will receive about 29% in the combined company, and the transaction of this size requires approval by the developer.

According to Robin West, managing director of the Center for Energy Development in the Boston consulting group, a similar plan that would make Occidental the third largest US oil production company is in line with Holab's reputation.

As one of the few women in industry leadership positions, it also supports measures to tackle climate change: the company must ultimately reduce net carbon emissions to zero.

"She is thinking about climate change and the company's license to work," the West said. At the same time, it does not forget the development strategy of the company. "

At first, after learning about her interest in Anadarko, analysts and investors felt that her ambitions had gone too far.

Occidental's interest reports in Anadarko emerged just minutes after Chevron's purchase approval was announced. The news immediately reduced the value of Occidental shares, which then continued to decline. Analyst Mizuho Paul Sanki called the Western proposal "a very bad idea": "In fact, no one supports their plans."

Concerns among investors

Most investors are worried about how the transaction will affect the situation of the Occidental. According to Jesse Gammela of Jeffrey, the offer is made up of cash in half, and the company will also take loans from Anadarco, raising net combined debt to $ 42.3 billion, more than three times the amount of annual cash flows from operations .

Osadidal intends to reduce the debt burden by selling $ 10 billion worth of property – $ 15 billion. In addition, Anadarko performs many operations to rejoice, including deep water deposits in the Gulf of Mexico and a project to export liquefied gas to Mozambique. All this does not fit into the current Occidental activity.

But if oil prices are again disintegrated, then this debt burden can turn into a serious problem. The Moody's credit agency announced a possible humiliation of the Occidental. If the proposal is accepted, then, according to Moody's, "a reduction should be expected for several points.

Given such concerns, Vicky Holab should prove that the agreement makes sense. According to her, the main thing is what Occidental can do with the assets of Anadarko in the Perm basin, the heart of the American shale.


Chevron said they expect a quick optimization of $ 2 billion a year, due to operating and capital savings for all operations in Anadarco. Occidental believes that they will be able to save $ 3.5 billion a year in virtually all types of activities in the Perm basin.

"We want people to realize that the value lies in the development of the shale industry," Holab said in an interview with Financial Times. It's much more profitable for us than for any other company. "

And there are certain arguments about this. Occidental achievements in the Perm basin are impressive: wells 4% of the wells in the watershed, including 23% of the first 100 wells with the highest productivity in the first six months of operation.

Andrew Dietmar of Drillingon's research firm pointed out that OxyDental can "be proud of" its achievements in the region, and Vicky Holab has every reason to believe that she can increase the efficiency of Anadarko's assets. However, according to him, Chevron can also achieve more than Anadarko, who failed to become one of the leading operators.

In addition, Chevron's properties closely match Ankarko's in the Perm Basin, although the Occidental estate also overlaps with them. Chevron also owns the rights to develop minerals in some areas leased by Anadarko, respectively, the company will have lower total cost to develop these areas.

The issue has not been resolved

In short, Dietmar concluded, the question that Occidental is the optimal owner of Anadarko's assets has not yet been resolved.

Anadarko issued a statement saying the board of directors "will carefully consider the Western proposal to determine actions that are in the legitimate interests of the company's shareholders." If the Western price is significantly higher than the offer of Chevron, it will be difficult for Anadorco's directors to refuse it.

However, it is still not easy to convince Occidental shareholders to support the deal. By the end of Wednesday's trading, Western shares fell by only 0.6% a day to $ 62, suggesting that some of the investors' initial anxiety could be reduced.

But Ms. Holab's support would be a huge share of her and a steady success of the Perm basin, which depends on the next drop in oil prices. In the battlefield, as in the Game of Thrones, seemingly victory can turn into even greater danger.

By topic:

Analysts predict a reduction in quarterly earnings of Exxon and Chevron

In the United States, the battle for shale funds is rising

Oil prices are falling in news of a sharp increase in reserves in the United States

Brent oil failed to fall in response to the significant increase in US stocks

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