Chevron Corp. announced Monday an agreement to buy Colorado-based oil and gas producer PDC Energy Inc. in an all-stock deal valued at $6.3 billion, or $7.6 billion when including debt.
The deal sent PDC shares
PDCE,
surging 7.9% in premarket trading, while Chevron’s stock
CVX,
fell 1.2%.
Under the terms of the deal, PDC shareholders will receive 0.4638 Chevron shares for each PDC share they own. Based on Friday’s closing price for Chevron’s stock of $155.23, the deal valued PDC shares at $72 each, a 10.6% premium to PDC’s Friday closing price of $65.12.
“PDC’s attractive and complementary assets strengthen Chevron’s position in key U.S. production basins,” said Chevron Chief Executive Officer Mike Wirth.
The deal is expected to close by the end of 2023.
Chevron said it expects the deal to add to “all key financial measures” within the first year after closing. It is expected to add about $1 billion in free cash flow per year with Brent crude at $70 a barrel and Henry Hub natural gas at $3.50 per thousand cubic feet (MCF).
The deal increases Chevron’s proved reserves by 10% at an acquisition cost of $7 per barrel of oil equivalent (BOE).
Chevron expects to increase capital expenditures (capex) by about $1 billion per year, and is therefore raising its capex guidance range through 2027 to $14 billion to $16 billion.
Synergies from the deal are expected to be around $100 million.
PDC’s stock has gained 2.6% year to date through Friday, while Chevron’s stock has dropped 13.5%, the Energy Select Sector SPDR exchange-traded fund
XLE,
has lost 9.0% and the Dow Jones Industrial Average
DJIA,
has gained 0.8%.
