How much did Occidental pay for Anadarko?

How much did Occidental pay for Anadarko?

Occidental Petroleum had been seeking to acquire Anadarko Petroleum for years prior to the deal coming to fruition. With the acquisition of Anadarko Petroleum, Occidental would increase control in the Permian Shale Basin, a sedimentary basin rich in natural gasses.

Permian Basin

Additionally, Occidental would take control of Anadarko’s global asset portfolio. Occidental believed that their proven management expertise applied to Anadarko assets would increase cash flow and dividends to the company. In order to successfully acquire Anadarko, Occidental had to outbid Chevron. The acquisition of Anadarko was expensive. In May of 2019, Occidental agreed to a $76 per share, $57 billion acquisition deal. So, how is Occidental Petroleum doing after this acquisition?

In an effort to fund the acquisition, Occidental turned to Warren Buffett’s Berkshire Hathaway for capital.

Buffett agreed to buy $10 billion worth in preferred stocks among various other terms and conditions. By the end of 2019, Occidental had a long-term debt total of over $38 billion dollars. Following the deal, Covid-19 disrupted the energy economy entirely.

The significant drop in fuel consumption due to travel restrictions caused gas prices to fall. Moreover, an average gallon of gas cost just $2.329. As a result, Occidental, along with all other oil companies, suffered stunted cash flows. In March of 2020, Occidental recorded its worst quarterly report with -$362 million dollars in free cash flow.

Figure 9: Significant hydrocarbon plays within the Permian Basin

Occidental was racing against time as large amounts of debt resulting from the deal were beginning to mature. Occidental scrambled to restructure its debt by issuing $2 billion dollars’ worth of new debt through selling bonds. This financial maneuver did not decrease the amount of Occidental’s debt but bought the company time to figure out ways to address the debt. At this point in time, the acquisition left Occidental at the bottom of a huge financial hole.

However, as times have changed, so has the finances of Occidental. In recent months, the Russian invasion of Ukraine has put a high premium on imported oil. Additionally, low investments in drilling new oil wells due to an expected shift towards renewable energy have decreased supply, also causing an increase in gas prices. Furthermore, combined with domestic inflation, gas prices have been flying through the roof.

The average gallon of gas costs $4.545 today, compared to just $3.076 the same time last year.

As foreign oil supply is highly dependent on geopolitics, of which the US has no control over, domestic oil becomes more reliable and sought after. The increased access to the Permian Shale Basin gained through the acquisition proves to be extremely valuable to Occidental. As gas prices continue to rise in 2022, Occidental’s cash flow has increased dramatically. From what started at $38 billion dollars of debt, Occidental has cut its debt down to $27 billion by the end of the first quarter of 2022. As Occidental continues to hit debt reduction goals, investors are more likely to gain trust and invest in the company once more. 

Although the acquisition of Anadarko by Occidental may have appeared a major bust at first, the company has made steady and significant strides, proving the value of the deal. In the first quarter of 2022, Occidental recorded one of the highest free cash flow figures in the company’s history at nearly $2.5 billion dollars. Clearly, Occidental’s strong position in the Permian Basin is starting to pay off. Lastly, with a strong cash flow and efficient asset management, Occidental is improving its debt structure quickly. In conclusion, if gas prices remain stable in the future, which it appears it will, Occidental will have made a profitable deal by increasing cash flow and dividends. 

Written by Steven Chen

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How much did Occidental pay for Anadarko? References

“U.S. All Grades All Formulations Retail Gasoline Prices .” U.S. All Grades All Formulations Retail Gasoline Prices (Dollars per Gallon), https://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=pet&s=emm_epm0_pte_nus_dpg&f=m

“Quarterly Earnings.” Zero In, https://www.oxy.com/investors/quarterly-earnings/

Sec.gov, https://www.sec.gov/Archives/edgar/data/797468/000114036119012838/nt10002240x5_424b3.htm#tTMA

Chiglinski, Catherine. “Is Occidental the Megadeal Warren Buffett’s Been Waiting For?” Bloomberg.com, Bloomberg, https://www.bloomberg.com/news/articles/2022-03-30/warren-buffett-occidental-petroleum-investment-goes-big#:~:text=Occidental%20has%20paid%20back%20much,bidding%20war%20with%20Chevron%20Corp. Blackmon, David. “Oxy Struggles to Cope with the Impacts of Its Acquisition of Anadarko.” Forbes, Forbes Magazine, 11 Aug. 2020, https://www.forbes.com/sites/davidblackmon/2020/08/11/oxy-struggles-to-cope-with-the-impacts-of-its-acquisition-of-anadarko/?sh=22fc587a2e7e.

How much did Occidental pay for Anadarko?