In a move to strengthen its position in key U.S. production basins, Chevron Corporation has announced its plans to acquire PDC Energy, Inc. in an all-stock transaction valued at US$6.3 billion. The agreement, which was reached with a premium of 14% based on the 10-day average closing stock prices on May 19, 2023, will see Chevron issue approximately 41 million shares of common stock to PDC shareholders. The total enterprise value, including debt, of the transaction is estimated to be US$7.6 billion.
The acquisition of PDC Energy provides Chevron with high-quality assets that are expected to deliver higher returns in lower carbon intensity basins in the United States. PDC brings a strong free cash flow, low breakeven production, and development opportunities adjacent to Chevron’s existing position in the Denver-Julesburg (DJ) Basin. Additionally, Chevron said the acquisition will further enhance Chevron’s leading position in the Permian Basin by adding additional acreage.
Chevron Chairman and CEO Mike Wirth expressed his enthusiasm about the acquisition, stating, “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.” Wirth also emphasized the company’s commitment to safe and reliable operations.
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PDC President and CEO Bart Brookman shared his optimism about the combination with Chevron, stating, “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 organisations, and I’m excited that PDC’s assets will help propel Chevron toward our shared goal for a lower carbon energy future.”
The transaction is expected to be accretive to earnings per share, free cash flow, and return on capital employed (ROCE). Chevron anticipates the transaction to add approximately US$1 billion in annual free cash flow based on the approximate 2024 futures prices as of May 2023. Furthermore, the acquisition is expected to increase Chevron’s proved reserves by 10% at an acquisition cost of under $7 per barrel of oil equivalent (BOE).
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With the inclusion of PDC’s assets, Chevron will gain 275,000 net acres adjacent to its existing operations in the DJ Basin, adding over 1 billion barrels of oil equivalent (BOE) of proved reserves in highly economic locations. In the Permian Basin, Chevron will integrate 25,000 net acres that are already held by production into its existing capital efficient development operations.
From a financial perspective, Chevron expects to increase capital expenditures by approximately US$1 billion per year, raising its guidance range to US$14 to US$16 billion through 2027. The company also foresees realizing about US$400 million in capital expenditure efficiencies post-closing. Additionally, the transaction is expected to achieve run-rate cost synergies of around US$100 million before tax within a year of closing.
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The acquisition of PDC Energy is subject to PDC shareholder approval, regulatory approvals, and other customary closing conditions. It has been unanimously approved by the Boards of Directors of both companies and is expected to close by year-end 2023.
Chevron’s acquisition of PDC Energy solidifies the company’s commitment to expanding its presence in key U.S. production basins, capitalising on attractive assets, and advancing its goal of a lower carbon energy future. As the transaction progresses, Chevron aims to seamlessly integrate the assets and leverage the synergies to drive long-term value for its shareholders and stakeholders alike.