(Reuters) Occidental Petroleum has agreed to buy closely-held U.S. shale oil producer CrownRock in a cash-and-stock deal valued at $12 billion including debt, expanding its presence in the largest U.S. shale oilfield.
The deal comes amid a new wave of shale consolidation underpinned by ExxonMobil's $60 billion proposed deal for Pioneer Natural Resources and Chevron's $53 billion agreement for Hess.
If approved, the CrownRock takeover would make Occidental a bigger player in the Permian shale field than Chevron and Hess combined. Its total production was 1.2 million boed at Sept. 30.
The CrownRock deal, expected to close in the first quarter of 2024, would boost Occidental's Permian production by 170,000 barrels of oil and gas production per day to 750,000 boed.
"We found CrownRock to be a strategic fit, giving us the opportunity to build scale in the Midland Basin and positioning us to drive value creation for our shareholders with immediate free cash flow accretion," said Occidental CEO Vicki Hollub.
Occidental's shares rose less than 1% to $56.96 in morning trade.
U.S. oil producers are using the post-Pandemic profit boom to expand their holdings and build assets to secure higher output and drilling inventory. That has led to a series of deals in the two years since the 2020 price crash.
U.S. oil is trading at about $71 per barrel, encouraging higher output as members of the Organization of Petroleum Exporting Countries pare oil quotas.
Occidental said it will finance the purchase with $9.1 billion of new debt, the assumption of CrownRock's $1.2 billion of existing debt and will issue $1.7 billion in common stock.
"The CrownRock assets are generally perceived to be of high quality, but investors are likely to question the merits of adding leverage to the Occidental balance sheet at this point in the cycle," said Third Bridge energy analyst Peter McNally.
Occidental had about $18.6 billion in long-term debt as of Sept. 30 and the deal would increase its debt to nearly $28 billion. CrownRock would be its first big deal since a widely criticized debt-laden purchase of Anadarko Petroleum in 2019.
"We are pretty negative on this deal," said Sankey Research analyst Paul Sankey. "You're adding a load of debt, when arguable you should be paying with shares".
Occidental plans to reduce its debt by about $15 billion and by at least $4.5 billion in the next 12 months from asset sales and cash flow.
Hollub said in a CNBC interview that Warren Buffett's Berkshire Hathaway, which had helped finance the Anadarko purchase, was not involved in the CrownRock deal.
Occidental said it will raise its quarterly dividend by 4 cents, to 22 cents a share, and expects to retain its investment grade credit ratings.
Cole Smead, CEO of Smead Capital Management, which owns about 5.9 million shares of Occidental in its U.S. portfolio said the deal showed "the optimism that Vicki and the folks at OXY exude right now about the future of the oil and gas business and the prices they are getting to take advantage of that".
Reuters first reported in September that CrownRock was preparing to explore a sale that could give it an enterprise value of well over $10 billion.
