A bidding war is breaking out over Anadarko Petroleum, with Occidental making an offer that it says is about a 20% premium to Chevron’s deal announced earlier this month, a rare move not often seen in the U.S. oil industry.
Houston-based Occidental Petroleum Corp. said the proposed combination would bolster its position in the Permian Basin in Texas and New Mexico, where it is already the largest oil producer.
“We have been focused on Anadarko for several years because we have long believed that we are ideally positioned to generate compelling value from a combination with them,” Occidental President and CEO Vicki Hollub said in a statement.
Occidental said in a letter to Anadarko’s board on Wednesday that its bid is worth $76 per share in cash and stock and would give Anadarko shareholders $38 in cash and 0.6094 shares of Occidental stock for each Anadarko share.
Occidental puts the value of its proposal at $57 billion, including debt and book value of non-controlling interest. Chevron’s deal was valued at $33 billion in cash and stock, or $50 billion including debt and book value of non-controlling interest.
The merger and rival bids are strong evidence that the Permian Basin is hot and only gaining potential as global supplies decline in the wake of sanctions in Venezuela and Iran, said Ryan Fitzmaurice, energy strategist at Rabobank.
“There’s still a lot of runway out there in the Permian,” Fitzmaurice said. “If people thought that the resource was dwindling or if the potential was becoming less, I don’t think you would see these types of transactions.”
The competitive bids also indicate that in some cases, it makes more sense to expand by swallowing up a competitor than to invest in traditional oil exploration.
“On the exploratory side, a lot of the easy stuff around the world has been already had,” said Leo Mariani, managing director and equity research analyst with KeyBanc Capital Markets. “It’s a difficult game, and it’s a low probability game if you want to find really big pools of oil out there.”
In a letter to Anadarko’s board of directors, Hollub said Occidental made three proposals to acquire Anadarko since late March, and that each offer was significantly higher than what Anadarko accepted from Chevron. She said Occidental was surprised and disappointed that Anadarko didn’t engage with Occidental on a previous proposal.
Anadarko said in a news release that its board of directors would carefully review Occidental’s proposal to determine what course of action would be in the best interest of the company’s stockholders. It said the board hasn’t determined whether Occidental’s proposal is superior to its merger agreement with Chevron.
Chevron, of San Ramon, California, did not respond to requests for comment.
It appears Occidental’s management team didn’t feel that they could negotiate successfully with the Anadarko board and management, so they took their proposal directly to shareholders, Mariani said.
“A lot of the energy executives know each other fairly well, and a lot of them have been at the same helm at the same companies for many years, so as a result, we tend not to see this type of hostile approach in the sector,” Mariani said. “It’s incredibly rare.”
Occidental said it is looking to close on the deal during the second half of the year.
Shares of Anadarko Petroleum Corp. jumped 11.6% to close Wednesday at $71.40. Occidental slipped 0.6% and Chevron’s shares declined 3%.