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What Chevron really gets from its $5 billion deal to buy Noble

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When Chevron announced Monday morning that it would acquire Noble Energy in an all-stock transaction, the company was sending out two powerful signals: after a bruising spring for the energy sector, dealmaking is once again on the cards—and gas is still king.

The San Ramon, California-based company said it would purchase Houston-based Noble in an all-stock transaction for $5 billion, $10.38 per share, the first such M&A deal after COVID-19 demolished energy demand this spring, pushing several independent U.S. oil and gas companies into bankruptcy. The deal is still subject to Noble shareholder approval, but is expected to be completed in the fourth quarter, Chevron said in a statement.

“This is a cost-effective opportunity for Chevron to acquire additional proved reserves and resources,” Chevron CEO Mike Wirth said in a statement Monday morning. “Noble Energy’s multi-asset, high-quality portfolio will enhance geographic diversity, increase capital flexibility, and improve our ability to generate strong cash flow.”

Chevron is the second-largest standalone oil and gas company in the U.S. after ExxonMobil, and is currently at number 15 on the Fortune 500. Noble shares rose by more than 6% in the hours after the announcement, while Chevron shares were down by 1.5%.

The deal has a total enterprise value including debt of $13 billion, Chevron said. Noble’s assets will expand the country’s reach across Colorado’s DJ basin and 92,000 acres of the Permian Basin—the blockbuster Texan oil field at the heart of the U.S. shale boom—and includes assets off the coast of Israel, a growing hub for gas production.

The Permian assets, in particular, will fulfill Chevron’s efforts to expand in the region, after a planned acquisition of Anadarko last year fell through when the company instead chose a deal with Occidental. Chevron chose to receive a $1 billion break-up fee instead of pursuing a bidding war.

“We’ve always said that we have a high bar for M&A, and this transaction clears those hurdles,” Wirth said in a call with investors following the announcement. The deal would also produce an estimated $300 million in pre-tax savings, including reductions in corporate office jobs, he added, and the option to scale up production as demand for energy returns.

The deal also represents an interesting expansion into the Eastern Mediterranean—the Israel assets represents Noble’s “crown jewel,” said Jean-Baptiste Bouzard, an analyst on the upstream research team at Wood Mackenzie, a Scottish energy consultancy. The company’s position in the East Med also includes a discovery off the coast of Cyprus.

Aside from local energy markets, including Egypt, the region also offers a closer transit-way through the Suez Canal to the energy-hungry economies of Asia.

“The Eastern Med is proving to be quite a prolific hydrocarbon basin, and Noble was there right at the beginning,” Wirth said on the call.

Demand for gas in the region continues to grow, he said. While gas prices have struggled with the drop in demand, paired with global overcapacity that has sent prices into a tailspin, Wirth’s bet on the region’s gas assets is a bet that many other in the sector—including Warren Buffet, who recently said he would acquire assets from Dominion Energy—are making: that as economies move to decarbonize, gas—while still a hydrocarbon—will be a lower-carbon option compared to coal.

“It’s widely acknowledged that it’s a fuel that will continue to displace coal for electricity generation,” Wirth said.

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Lyron Foster is a Hawaii based African American Musician, Author, Actor, Blogger, Filmmaker, Philanthropist and Multinational Serial Tech Entrepreneur.

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