Chevron Corp. said Monday that it will acquire Denver-based PDC Energy in an all-stock transaction valued at $6.3 billion, adding to its oil and gas holdings in the Denver-Julesburg and Permian basins.
The deal will net Chevron 275,000 acres next to its existing operations in the Denver-Julesburg Basin in eastern Colorado and more than 1 billion barrels of oil equivalent. Chevron will acquire 25,000 additional acres in the prolific oil fields of the Permian in West Texas and New Mexico.
Chevron Chairman and CEO Mike Wirth said in a statement that PDC’s assets will strengthen Chevron’s position in key U.S. production basins.
The deal is expected to boost Chevron’s annual free cash flow by $1 billion.
“The combination with Chevron is a great opportunity for PDC to maximize value for our shareholders. It provides a global portfolio of best-in-class assets,” PDC President and CEO Bart Brookman said.
Under the agreement, PDC shareholders will receive 0.4638 shares of Chevron stock, worth $72 based on Friday’s closing price of $155.23, for each PDC share. Chevron said the transaction’s total enterprise value, including debt, is $7.6 billion.
“The deal makes Chevron an even more formidable operator in Colorado by tacking an additional 275,000 net acres onto the significant (Denver-Julesburg) position the company acquired in 2020 with its purchase of Noble Energy,” Andrew Dittmar, director at Enverus Intelligence Research, said in an email.
In 2020, Chevron bought Noble Energy, which was the second-largest oil and gas producer in the Denver-Julesburg Basin.
Chevron will be able to leverage operational synergies in both basins, worth an expected $100 million annually, Dittmar said. “Chevron is well positioned to be a champion for oil and gas production in Colorado.”
A potential concern is anti-trust pushback because the Denver-Julesburg Basin is “relatively consolidated” and recent mergers and acquisitions are getting higher scrutiny, Dittmar said.
The boards of both companies have unanimously approved the transaction, which is expected to close by year’s end. The acquisition is subject to approval by PDC shareholders.
“Chevron’s acquisition of PDC highlights a lack of inventory in the marketplace amongst the largest players. It’s clearly cheaper for them to buy on the NYSE than to explore for new resources,” Ben Dell, co-founder and managing partner of Kimmeridge Energy Management Co., said in an email.
Chevron apparently paid less than $5,000 per acre in the Denver-Julesburg Basin with more than 80% of the total deal value allocated to existing production, Dittmar said. Land with the equivalent quality of inventory in the Permian Basin “has priced at north of $20,000 an acre” in recent transactions, he added.
“The Colorado assets do come with some increased regulatory risk, but the worst case for stopping permitting feared several years back has largely not come to pass,” said Dittmar, referring to a 2019 state law that mandated an overhaul of oil and gas rules.
The story was updated May 22 at 12:43 p.m. to add comments from analysts.
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