Chevron Corp. (NYSE: CVX) on Monday announced that it had reached a definitive agreement to acquire Noble Energy Inc. (NYSE: NBL) in an all-stock deal valued at $5 billion, or $10.38 per share. Noble’s stock closed $9.65 a share on Friday, and the Chevron offer represents a premium of around 7.6% to the closing price.
Houston-based Noble has built up a portfolio of U.S. onshore assets in the Denver-Julesburg Basin, the Permian Basin and the Eagle Ford play. The company’s primary asset, however, is its natural gas field offshore of Israel in the eastern Mediterranean Sea.
Chevron said the acquisition will boost its proved oil and gas reserves by 18% at an average cost of less than $5 per barrel of oil equivalent and that the acquisition adds almost 7 billion barrels of risked reserves at less than $1.50 per barrel.
Just over a year ago, Chevron came in second when Occidental Petroleum Corp. (NYSE: OXY) paid a whopping $57 billion (including debt) in cash and stock to buy Anadarko Petroleum. Chevron also won a $1 billion breakup payment when its $50 billion offer was rejected.
According to the Chevron announcement Noble’s U.S. assets “will enhance” the company’s upstream portfolio, but the Mediterranean natural gas field “brings low-cost, cash-generating” assets under the company’s tent. Chevron projects pretax run-rate savings of about $300 million and an increase to free cash flow, earnings and book returns one year after the deal closes.
Chevron is paying for Noble by issuing 58 million new shares that will be exchanged for Noble shares at a ratio of roughly one for nine (0.11.91 shares of Chevron for each share of Noble). Including the assumption of Noble’s net debt of about $7.1 billion, Chevron’s total tab runs to $13 billion.
The transaction is expected to close in the fourth quarter of this year, following approval by Noble shareholders and the usual regulatory approvals. Once the transaction is completed, Noble shareholders will own approximately 3% of the combined company.
Noble has had a rough year. Shares traded near $24 in January before dipping below $3 in mid-March. The company had been considered a potential acquisition target not long after the Oxy-Anadarko deal was announced. Chevron did not jump right away, however, and has come away with a deal that cost it no cash and includes a cash-generating operation in Israel.
Noble’s stock jumped by more than 9% in Monday’s premarket session to $10.55, in a 52-week range of $2.73 to $27.31. The company pays a cash dividend of $0.08 per share (0.83% yield).
Chevron’s shares traded down less than 0.5%, at $86.83 in a 52-week range of $51.60 to $127.00. Its consensus 12-month price target is $99.69, and the company pays a cash dividend of $5.16 (5.92% yield).
This acquisition looks capable of helping Chevron maintain that rich dividend and puts some pressure on rival Exxon Mobil Corp. (NYSE: XOM), which pays a cash dividend of $3.48 (8.0% yield). Exxon’s shares traded down about 0.5% in Monday’s premarket.