The second-largest oil producer in the US, Chevron, is to expand its US operations with the purchase of PDC Energy, which produces oil in the Permian Basin of Texas and New Mexico.
Chevron, which markets products like the Texaco Meropa gear oil in the UK, currently produces around 700,000 barrels of oil equivalent per day (boed) in the Permian. The acquisition of PDC will add a further 26,000 boed to this, plus a further 260,000 beod in the Denver Basin.
The deal involves an exchange of stock and debt worth some $7.6 billion, which values PDC at a modest premium over its recent trading price. Michael Wirth, the CEO of Chevron, pointed out to Reuters in an interview that the shares involved in the deal would essentially be bought back in less than half a year under its current buyback plans:
“We’re repurchasing shares at a rate of $17.5 billion per year. So we’d buy those shares back very quickly.”
He also indicated that the deal will not rule out further acquisitions:
“We never stopped looking. We look for things that have a strategic fit with our portfolio that create value for shareholders.”
The deal is expected to be completed by the end of the year, at which point it will increase Chevron’s reserves by about 10%, which should help address investors’ concerns about the company’s ability to continue growing production towards the end of this decade. Within a year, the company’s free cash flow and capital expenditure are both expected to increase by a billion dollars each.