Big Oil shares sink while Chevron prepares for Noble Energy takeover

Matthew Farmer 2 October 2020 (Last Updated October 2nd, 2020 16:16)

Noble Energy will today approve a buyout by US oil giant Chevron, at a stock value of $4.2bn.

Big Oil shares sink while Chevron prepares for Noble Energy takeover
The deal between Chevron and Noble Energy is the first large acquisition of the oil and gas industry’s ongoing winter. Credit: Ben PL under CC BY SA 2.0 license.

Noble Energy will today approve a buyout by US oil giant Chevron, at a stock value of $4.2bn. This comes as shares in BP and Shell sink past their previous lowest point, reached earlier this year.

Chevron announced its agreement to purchase Noble Energy in July. At the time, the all-stock value of the deal stood at $5bn, with a total enterprise value of $13bn.

In a special meeting on Friday, Noble Energy executives are expected to approve the deal. When seeking a buyer, Noble reached out to eight companies, but none have challenged Chevron’s offer since it was made.

In a statement at the time, Chevron chairman and CEO Michael Wirth said: “This is a cost-effective opportunity for Chevron to acquire additional proved reserves and resources. Noble Energy’s multi-asset, high-quality portfolio will enhance geographic diversity, increase capital flexibility, and improve our ability to generate strong cash flow. These assets play to Chevron’s operational strengths.”

GlobalData oil and gas analyst Adrian Lara believes Nobel’s shareholders also see the opportunity for harmony between the businesses. He said: “The acquisition of Noble Energy is interesting because it indicates Chevron’s strategy in increasing its natural gas portfolio. In particular, its interest would lie in Noble’s assets in the Eastern Mediterranean, which are considered de-risked natural gas reserves with an upside natural gas demand in the region and eventually positioned to meet LNG demand worldwide.

“Chevron also acquired Puma Energy in Australia for $300m, with the vision of expanding the company’s refining and marketing value chain in the Asia-Pacific and further extend the value of Caltex brand in the region.”

Chevron and Noble escape Big Oil’s continued struggle with low demand

Lara continued: “Chevron’s shares have very much followed a downward path during recent months. However, the company indicated some positive opportunities in its last quarterly report, and this is the basis for its improved outlook.

“Although Chevron took a substantial loss in Q2 due to impairments, the company has a relatively healthy balance sheet. It remains focused on the Permian, and in acquiring Noble Energy it will increase its Permian acreage. This gives it a leasehold in the DJ Basin, and opens up new opportunities in the international natural gas market.”

Shares in BP and Shell companies reached their lowest point for 25 years this week. Analysts from Rystad Energy said this comes from rising coronavirus infections and poor market recovery after the initial price crash in March.

Senior oil markets analyst Paola Rodriguez-Maiu said: “Amid the rise of infections, traders think of coming restrictions and see oil demand as fragile. Indeed, the recovery that started in the first half of the year is now muted, and we may see some production needing to be sent to inventories in 2020’s last quarter.”

BP and Shell struggle with delays and costs


On the BP situation, GlobalData analyst Daniel Rogers said: “BP has proven its willingness to invest big outside its core business, but will continue to rely on hydrocarbons as the cash cow for future investments. The current market fundamentals reduce the profitability of BP’s core business, potentially shrinking its pool of capital available for future low-carbon acquisitions.”

In April, the company announced a delay to its Tortue LNG project due to Covid-19. The project would produce gas from a deep-water subsea system, before processing it on a floating production, storage and offloading (FPSO) vessel. The vessel would then deliver this to a floating LNG facility, based near the borders of Mauritania and Senegal.

However, the pandemic meant BP would not be ready to receive the floating LNG facility in time. Rogers continued: “The delay of the Tortue LNG project was a major blow and further delays could hinder BP’s 2025 target from being achieved. Future developments in Mauritania and Senegal will be the cornerstone of the company’s growth opportunities, but will hinge on investment decisions going ahead in spite of a potentially oversupplied LNG market going into the late 2020s.”

Meanwhile, Shell announced 9,000 job losses on Wednesday, approximately one-tenth of its workforce. CEO Ben van Beurden said: “We are doing this because we have to, because it is the right thing to do for the future of the company. We have to be a simpler, more streamlined, more competitive organisation that is more nimble and able to respond to customers.”

A financial update from the company said this comes as part of an effort to cut costs by at least $2bn by 2022. The company’s adjusted earnings could also fall by up to $400m from last quarter, because of maintenance activities and ‘higher volume-driven activity’.

Earlier this week, Total gave details on its plans to increase investment in renewable energy.