Chevron (CVX) has agreed to buy Anadarko Petroleum (APC) for $33 billion in cash and stock. On the news shares of Anadarko are up 32.5% to $61.85. Shares of Chevron are off 4.91% to $119.81.Meaured by oil and natural gas production, the deal puts Chevron neck-and-neck with ExxonMobil (XOM) and Royal Dutch Shell (RDS). Measured on last year’s cash flow, the combined Chevron/Anadarko cash flow at $36.5 billion would have surpassed ExxonMobil’s.
But there’s more than just size at the core of this deal. Anadarko’s most attractive assets are its acreage and production from the oil sands geologies of the United States (and particularly the low-cost, high-production Permian Basin) and its liquified natural gas production in Mozambique.The key asset in the deal is, in my opinion, Anadarko’s acreage in the Delaware geology of the Permian Basin. The company has identified 10,000 horizontal drilling locations within its acreage and forecasts that these asset will show a five-year oil production compounded annual growth rate of nearly 20% in the basin.
Production from the Permian is attractive for a number of reasons in today’s oil market. It’s relatively quick to ramp up production from oil shales and relatively easy to shut it down. That’s a big plus in a period where oil prices are showing solid gains but where nobody can discount big turmoil in oil supply and demand.
The market hasn’t pushed Anadarko’s stock above the $65 offered by Chevron, even though Occidental Petroleum (OXY) is reported to have offered $70 in stock and cash. (The Wall Street wisdom is that the Chevron bid won out because Anadarko’s board saw better potential in Chevron shares and worried that the deal would be such a stretch for Occidental that it would drive down the price of Occidental shares that Anadarko received in the deal.) The absence of a move above the offered $65 a share indicates that Wall Street isn’t expecting a bidding war for Anadarko.
As you can imagine the news has pushed shares of other companies with big Permian positions higher–much higher. Concho Resources (CXO), example closed up 8.75% today. Diamondback Energy (FANG) ended the day higher by 6.37%. The biggest move, however, came in shares of Pioneer Natural Resources (PXD), which gained 11.53% on the day. Pioneer has the best portfolio, in my opinion, of Permian assets and any oil major looking to make a BIG deal in oil shale would certainly look at Pioneer.
Pioneer is a member of my long-term 50 Stocks portfolio. On April 1 I sold Diamondback Energy out of my 12-18 month Jubak Picks Portfolio ahead of earnings season. And on my subscription site JubakAM.com I listed Pioneer as a stock that could show major damage with a miss during earnings season in my Special Report on the 10 most dangerous stocks for earnings season. I also made it one of my five “Buy on Any Plunge” picks in my Bonus Special Report on that subscription site and recommended holding on to the shares now and picking up more if there is a sell off on earnings.