Occidental Petroleum agreed on Monday to buy CrownRock, a big privately owned energy company that works in the Permian Basin, for $12 billion, according to a report.
This deal is the latest in a series of mergers in the U.S. energy industry, especially in the Permian, which is the largest oil-producing region in the U.S. The transaction is expected to be completed in the first quarter of 2024.
CrownRock is working on a 100,000-acre area in the Midland Basin, which is part of the Permian and covers 20 counties in western Texas. In 2020, the Midland Basin produced 15% of the crude oil in the U.S., according to the U.S. Energy Information Agency.
The deal will increase Occidental’s daily oil equivalent production by 170,000 barrels and provide 1,700 undeveloped locations in the Permian.
To fund this acquisition, Occidental plans to take on $9.1 billion in debt and issue around $1.7 billion in common stock.
Occidental’s Expansion to Buy CrownRock
Vicki Hollub, the CEO of Occidental, mentioned that the company is buying CrownRock to expand its operations in the Midland Basin, emphasizing the importance of scale and inventory. She also stated that this move allows Occidental to raise its quarterly dividend from 18 cents to 22 cents per share starting next year.
CrownRock, led by Texas billionaire Timothy Dunn and supported by Houston-based private equity firm Lime Rock Partners, is one of the remaining major private energy producers in the Permian, along with Endeavor Resources.
Occidental, the ninth-largest energy company in the U.S. with a market capitalization of $49.7 billion, has about a 26% ownership stake from Warren Buffett‘s Berkshire Hathaway. Occidental’s stock has seen a 10% decline this year, but in morning trading on Monday, its shares were up by 1%.
CEO Hollub clarified that Berkshire Hathaway was not part of the CrownRock deal. However, Occidental did have discussions with Buffett about how the acquisition aligns with the company’s overall strategy.
Occidental’s most recent significant purchase was acquiring Anadarko Petroleum for $55 billion in 2019. This acquisition increased the company’s debt and led to a contentious dispute with activist investor Carl Icahn, who sold his remaining stake in the company in 2022.
CEO Hollub stated that Occidental’s aim is to reduce its debt to below $15 billion, even with the $9.1 billion in obligations from the CrownRock acquisition. Occidental plans to achieve this by selling off certain domestic assets that are not essential to its portfolio.
Hollub explained, “The debt situation over the next two to three years will be similar to what it would have been without this acquisition because we will use a combination of cash flow and divestitures to manage it. So the financial metrics will be comparable to what they would have been.”
Recent Developments in the Energy Sector
Occidental’s acquisition of CrownRock marks the third significant transaction in the energy sector in under two months.
In October, Exxon Mobil revealed plans to acquire Pioneer Natural Resources for approximately $60 billion. Pioneer is recognized as one of the leading producers in the Midland Basin, as noted by Enverus. Shortly after, Chevron announced its agreement to buy Hess for $53 billion.
CEO Hollub clarified that Occidental’s decision to purchase CrownRock was not influenced by Exxon’s acquisition of Pioneer.
Addressing the decline in oil prices, Hollub stated that Occidental anticipates U.S. crude to have an average of $80 per barrel, while West Texas Intermediate was trading at around $71 on Monday. Hollub attributed the decrease in crude prices to the record production levels in the U.S.
Hollub advised caution for U.S. producers, suggesting that it would be wise not to flood the market with excessive supply. She mentioned that Occidental can break even with oil priced at $40 per barrel, stating, “We have the capability to not only maintain but also modestly grow our production, continuing to provide value.”
Occidental Petroleum’s $12 billion acquisition of CrownRock is part of a broader trend in U.S. energy consolidation, focusing on enhancing production in the Permian Basin. CEO Hollub’s strategy includes debt management and asset optimization. Industry-wise, Exxon Mobil and Chevron also make significant moves, reflecting a dynamic market. Occidental remains resilient amid oil price fluctuations.