Occidental Petroleum to acquire CrownRock for $12 billion in move to bolster Permian presence

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In a strategic move to expand its footprint in the prolific Permian Basin, Occidental Petroleum announced on Monday that it has reached an agreement to acquire CrownRock, a major privately held energy producer, for a hefty $12 billion. The Permian Basin, the largest oil-producing region in the U.S., has been witnessing a surge in consolidation within the energy sector, and this latest deal underscores Occidental’s commitment to fortify its position in this key region.

The transaction is anticipated to be finalized in the first quarter of 2024 and is set to add a substantial 170,000 barrels of oil equivalent per day to Occidental’s production. CrownRock, currently developing a 100,000-acre position in the Midland Basin, a crucial area within the Permian, is expected to contribute significantly to Occidental’s operational capabilities. The Midland Basin alone produced 15% of U.S. crude in 2020, highlighting its strategic importance.

To finance this substantial acquisition, Occidental plans to issue $9.1 billion in debt and approximately $1.7 billion in common stock. Occidental’s CEO, Vicki Hollub, emphasized that the purchase of CrownRock aligns with the company’s strategy to increase scale in the Midland Basin, citing the scale and inventory benefits as pivotal factors in their decision-making process.

As part of this acquisition, Occidental will gain access to 1,700 undeveloped locations, providing the company with significant growth potential in the Permian region. Hollub further stated that the move allows Occidental to enhance shareholder value, leading to an increase in the company’s quarterly dividend from 18 cents to 22 cents per share beginning next year.

CrownRock, led by Texas billionaire Timothy Dunn and supported by the Houston-based private equity firm Lime Rock Partners, stands as one of the last major private producers in the Permian alongside Endeavor Resources.

Despite Occidental’s $55 billion acquisition of Anadarko Petroleum in 2019, which led to increased debt and disputes with activist investor Carl Icahn, Hollub expressed confidence in the company’s ability to manage its finances. The goal is to reduce debt below $15 billion, even with the additional $9.1 billion from the CrownRock acquisition, by divesting non-core domestic assets.

This move by Occidental comes amidst a wave of consolidation in the energy sector, with Exxon Mobil’s acquisition of Pioneer Natural Resources for $60 billion and Chevron’s agreement to purchase Hess for $53 billion in the past two months. However, Hollub clarified that Exxon’s deal did not influence Occidental’s decision to acquire CrownRock.

Addressing concerns about falling oil prices, Hollub expects U.S. crude to average $80 a barrel, attributing the decline to record U.S. production. She emphasized Occidental’s ability to remain resilient, stating that the company can break even with oil at $40 a barrel and is well-positioned to continue delivering value to shareholders while navigating market dynamics.

(Source: CNBC | Reuters | Investor’s Business Daily)

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