By Sabrina Valle
(Reuters) -Chevron Corp said on Monday it would acquire shale producer PDC Energy Inc in a stock-and-debt transaction worth $7.6 billion, increasing its oil and gas footprint in the United States.
The acquisition will add 10% to Chevron’s reserves, giving it future production in the U.S., and add about $1 billion to both its capital expenditures and free cash flow as soon as 2024, or within a year of the deal closing.
In early trading, Chevron lost 1.5%, while PDC Energy rose 8%.
The deal values PDC at $72 per share, representing a premium of 14% to its 10-day average as of Friday. It is expected to close by year-end, the companies said.
The acquisition will add 260,000 barrels of oil and gas production per day (boed) to Chevron’s output as soon as 2024, Chief Executive Michael Wirth said in an interview.
“It’s a strong investment in our business in the U.S.,” Wirth added. The company and rivals were criticized last year by U.S. President Joe Biden for not increasing output as fuel prices spiked.
The properties it is acquiring are “high-quality inventory,” said Andrew Dittmar, who specializes in M&A at researcher Enverus. The price values PDC at about its current production rate, he said, describing the untapped reserves that come with it as “essentially free.”
Chevron executives have been saying since last year that the company was looking for acquisitions in the U.S. The company also recently flagged it wanted to reduce its cash stockpile in a way that would enhance shareholder profitability.
Wirth said Chevron’s buyback guidance is unchanged.
The company has been under pressure on Wall Street to show it can keep expanding production after 2027 as its main shale holdings in the Permian Basin of West Texas and New Mexico near their peak output.
The deal will increase Chevron’s capital spending by about $1 billion per year, raising its range to $14 billion to $16 billion through 2027, the company said.
The PDC Energy deal is Chevron’s second in three years to bulk up operations in Colorado and Wyoming. The No. 2 U.S. oil producer is one of the top producers in the Denver-Julesburg Basin after its $13 billion acquisition of Noble Energy in 2020.
With the acquisition of PDC, Chevron will add 10% to its proved reserves at a projected cost of less than $7 per barrel, the company said in a statement.
The oil major has minted cash from last year’s sky-high crude prices and held $15.7 billion in cash and equivalents at the end of the first quarter, about triple what it needs for operating activity.
(Reporting by Arunima Kumar in Bengaluru; Editing by Krishna Chandra Eluri and Sharon Singleton)
