In mid April, Chevron announced the purchase of Anadarko Petroleum Corp for $33 billion stock and cash, the deal increases the size of Chevron to be the big Four – Exxon Mobil, Chevron, Shell and BP. The deal for Chevron is about the Permian Basin Shale and LNG. The Permian Basin shale is in Texas and New Mexico and due to fracking has made the US energy self sufficient and there is plenty of oil to be recovered. LNG stands for Liquefied Natural Gas. In an article by John Benny and Jennifer Miller of Reuters, Chevron’s Chief Executive Mike Wirth said the deal offers a compelling and unique fit in similar areas. Chevron expects to sell $15 billion in assets over time to pay for the deal.
Chevron owns 2.3 million acres in the Permian Basin and the combined company would have a 75 mile corridor across the Permian’s Delaware basin. Drillinginfor analyst Andrew Dittmar estimated Chevron is paying about $50,000 an acre for Anadarko’s west Texas holdings.
Chevron said the deal would add to its free cash flow and profit one year after closing as long as oil prices stay above $60 barrel.
Linking to dividend paying stocks, it is hard not to have an energy company in your portfolio because as long as oil prices are greater than $50, they make large profits. The higher the price of oil, the more the profit even as the world slowly moves away from fossil fuels. The companies have free cash flow to pay and increase dividends and overtime the price of the shares increase in value.
There are more questions than answers, till the next time – to raising questions.