MarketLine Blog

Chevron buys Anadarko: $33bn purchase is big move into US shale

For now the purchase of Anadarko Petroleum Corporation – a company that in 2018 registered $13bn in revenue but which consistently lost billions of dollars each year before turning a profit in 2018 – remains the largest of its type and places Chevron level with ExxonMobil and Royal Dutch Shell in terms of production. Last year the newly combined company would have generated greater revenues than ExxonMobil. Investing so heavily reveals the degree of confidence big oil players have in shale gas extraction. The scale of operations such companies will bring should help to stabilize what has been a notoriously volatile part of the oil and natural gas extraction industry, helping the company to gain a suitably large return on the investment.

Activity from the largest fossil-fuel extraction companies has been speeding up since the beginning of 2018 when ExxonMobil purchased 275,000 acres in the Permian Basin for $6.6bn. Later that year BP took over the shale assets of BHP Billiton, making the company the largest foreign player in the United States. However, a factor that could hold back deal making is the lack of enthusiasm such deals have been met with. The share price of Chevron dropped 4.9% upon the announcement of the Anadarko deal whilst those of shale producers rose significantly. If shareholders are disenchanted by massive investments into shale then boards will likely become more reluctant to allow further deals to be made.

A key reason why oil majors are now becoming so active in acquiring shale firms is the expected merger and acquisition activity among companies working mainly in US shale failed to occur as many analysts expected. Wall Street lost interest in funding shale after losing money for the thick end of a decade and being subjected to a determined effort from Saudi Arabia to price them out of business. To what extent problems can be attributed to the relative lack of merger and acquisition among the specialist shale firms is difficult to ascertain accurately, but at the very least it has played an important role.

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