Here's Why Energy M&A Is Expected To Remain Healthy In 2020
Zacks Investment Research | Jan 07, 2020 10:04PM ET
Mergers and acquisitions (M&A) activity among upstream energy companies surged to a five-year high of $96 billion in 2019, thanks to mega deals such as Occidental Petroleum’s (NYSE:OXY) buyout of Anadarko Petroleum (NYSE:APC).
While a number of companies struck deals to increase scale and stay competitive, some transactions were driven by the need of diversification across geographical coverage.
Here is an overview of the five major proposed exploration and production energy deals from 2019:
1. Occidental-Anadarko
In early August, Occidental completed a $57 billion (including debt) mega-merger deal with Texas-based upstream company Anadarko Petroleum after it prevailed in a bidding war with supermajor Chevron (NYSE:CVX) . At stake was Anadarko’s 250,000 net acres in the fastest growing oil producing region in the world - the Permian basin spread over west Texas and New Mexico. Occidental’s motive was to become the largest crude producer in the Permian Basin, where it owned maximum acreage (around 2.5 million acres) followed by Chevron (2.2 million acres).
Per Occidental, the combined company boasts a production capacity of 1.3 million barrels of oil equivalent per day and is expected to be accretive to free cash flow within a year of the acquisition. It is also on track to generate $3.5 billion of free cash flow through $2 billion of annual cost synergies and $1.5 billion of annual capital reductions.
2. BP-Hilcorp Energy
In August, BP plc (NYSE:BP) Zacks Investment Research
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