Chevron to expand its US presence amid PDC Energy acquisition

Chevron Group has said that it will expand its oil and gas presence in the United States with the acquisition of PDC Energy Inc. Chevron will acquire PDC Energy through a stock-and-debt deal valued at $7.6 billion.

Chevron To Expand US Footprint With PDC Energy Acquisition

Chevron is the second-largest oil company in the United States. The deal between the company and PDC Energy will boost its production, capital expenditures, and cash flow within the US. The deal comes as geopolitical tensions threaten the global energy supply.

While speaking to Reuters, the Chief Executive Officer at Chevron, Michael Wirth, said that the acquisition was a solid investment in the US. Some of the large oil companies in the US are facing criticism from President Joe Biden over their failure to increase output despite hikes in fuel prices last year.

In recent months, concerns have been raised over the ability of Chevron to quench worries of a decline in its US shale properties after a negative performance in West Texas and New Mexico in 2022.

Analysts believe that the concerns being raised around the Permian shale could linger for longer. Additionally, the deal has valued PDC, which is based in Denver, at $72 per share, which is around a 14% premium to the 10-day average that ends on Friday. The companies expect that the deal will be finalized by the end of the year.

Chevron Is Expanding Its US Presence

Once this acquisition is finalized, it will increase Chevron’s reserves by around 10%. It will also increase the company’s capital expenditures while supporting free cash flow by around $1 billion within one year of the deal being finalized.

Through this acquisition, there will be an additional 260,000 barrels of oil and gas production daily to the company’s output in the DJ basin. The production will make the company’s operations in Colorado among the top five business assets in production.

The properties that the company will acquire include “high-quality inventory.” The price that the company is paying for the deal has valued PDC at around its current production rate. Therefore, the untapped reserves by the company will be acquired by Chevron at no additional cost.

Chevron has been exploring acquisitions in the US since last year. Recently, the company announced plans to lower its cash stockpile to boost the profitability of shareholders. However, the company did not change the buyback guidance.

The company has also been facing pressure from Wall Street to demonstrate that it can maintain high production levels after 2027 at the Permian Basin of West Texas and New Mexico. This deal will increase spending by Chevron by around $1 billion annually, while the annual range will be between $14 billion and $16 billion by 2027.

The acquisition of PDC will allow Chevron to add 10% to its reserves at below $7 per barrel. The company is also exploring other acquisitions and looking for companies that fit within its portfolio to maximize the value available for the shareholders.