By John Benny and Jennifer Hiller
(Reuters) - Chevron Corp on Friday said it will buy Anadarko Petroleum Corp for $33 billion (25 billion pounds) in cash and stock to bolster its position in shale oil and the liquid natural gas (LNG) market with the biggest industry merger since Royal Dutch Shell bought BG Group in 2016.
With oil prices surging this year, Chevron and larger rival Exxon Mobil Corp have been increasing investment in the United States' Permian basin in West Texas, the most prolific shale oil field in the country.
Chevron, Exxon, Royal Dutch Shell Plc and BP Plc largely missed out on the first phase of the Permian shale bonanza while more nimble independent producers such as Anadarko pioneered shale drilling technology and leased Permian acreage on the cheap.
Chevron, which already has 2.3 million acres in the Permian Basin, said the deal to buy Anadarko would give the combined company a 75-mile (120-km)-wide corridor across the Permian's Delaware basin, on the Texas-New Mexico border. Anadarko also has a Mozambique LNG project, part of one of the industry's largest planned current investments.
The deal has sparked speculation that other shale producers are in play. Shares of Apache Corp , which also has extensive acreage in the Permian Basin, jumped 7 percent in premarket trading, while Pioneer Natural Resources Co rose 6 percent.
Chevron shares fell 4 percent as investors weighed the cost of the deal, which includes taking on $15 billion of Anadarko's debt.
"This seems a big bet on shale and on oil prices remaining high," said CMC Markets analyst Michael Hewson. "That seems a big ask if you think that renewables are set to comprise an increasing bigger part of the energy mix."
Shares of Anadarko surged 33 percent, reflecting the 39 percent premium offered by Chevron compared to Thursday's closing market price. The $65 per share offer was structured as 75 percent stock and 25 percent cash.
Producers in the Permian basin pump around 4 million barrels per day (mbd) and IHS Markit expects it to hit 5.4 mbd in 2023, more than the total production of any OPEC country other than Saudi Arabia.
Last month, Chevron said it expects shale production from the basin to reach 600,000 barrels per day (bpd) by the end of next year.
The company said the deal would add to its free cash flow and profit one year after closing, if Brent crude, currently around $70, holds above $60 per barrel.
Chevron also said it plans to raise annual share buybacks to $5 billion from $4 billion when the deal closes and to sell $15 billion to $20 billion of assets between 2020 and 2022.
The enterprise value of deal is $50 billion..
Under the terms of the agreement, Anadarko shareholders will receive 0.3869 shares of Chevron and $16.25 in cash for each Anadarko share.
Chevron Chief Executive Michael Wirth will lead the combined company after the deal closes. Chevron will remain headquartered in San Ramon, California.
Credit Suisse Securities (USA) LLC is Chevron's financial adviser, while Paul, Weiss, Rifkind, Wharton & Garrison LLP is its legal adviser.
Evercore and Goldman Sachs are financial advisers to Anadarko, while Wachtell, Lipton, Rosen & Katz and Vinson & Elkins LLP are its legal advisers.
ADVERTISEMENT(Reporting by John Benny and Shradha Singh in Bengaluru, Greg Roumeliotis in New York; Editing by Patrick Graham and Sriraj Kalluvila)
