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Occidental CEO says she will prevail in bidding war for sought-after oil driller Anadarko. Here's why

Key Points
  • Occidental launches a rival bid for Anadarko, which agreed to sell its business to Chevron in a deal valued at $33 billion earlier this month.
  • Occidental CEO Vicki Hollub says her company can get the best results out of Anadarko Petroleum's wells in the Permian Basin, the top U.S. shale region.
  • Hollub says Occidental is outperforming other drillers in the Permian, squeezing more oil from the region's shale rocks at lower cost.
VIDEO7:0407:04
Occidental CEO discusses the decision to make a formal bid to buy Anadarko

Occidental Petroleum CEO Vicki Hollub said Wednesday her company can squeeze the best results out of Anadarko Petroleum's wells in the top U.S. shale basin, making Occidental a better acquirer than Chevron.

Earlier Wednesday, Occidental launched a rival bid for Anadarko, which agreed to sell its business to Chevron in a deal valued at $33 billion earlier this month. Occidental is offering $76 a share for Anadarko, representing a roughly 20% premium to Chevron's $65-per-share offer.

Hollub says 75 percent of Anadarko's value lies in its assets in the Permian Basin, the shale oil region underlying western Texas and eastern New Mexico. The Permian is the epicenter of a boom in U.S. oil production.

"We are the right acquirer for Anadarko Petroleum because we can get the most out of the shale," Hollub told David Faber on CNBC's "Squawk Box." "We have a lot more experience there. We are performing really, really well, and what hasn't been talked about very much is that the upside in this deal is the shale play, is the shale development."

Shares of Occidental fell about half a percent on Wednesday, while Chevron's stock price slumped 3.1%. Meanwhile, Anadarko shares surged 11.6% for the biggest daily gain in the stock index.

Anadarko confirmed on Wednesday that it had received Occidental's unsolicited bid. The company said its board will carefully review the proposal to determine the best course of action for shareholders.

"The Anadarko board has not made any determination as to whether Occidental's proposal constitutes, or could reasonably be expected to result in, a superior proposal under the terms of the Chevron Merger Agreement," the Company said in a statement.

Chevron is also pitching itself as an ideal steward of Anadarko's Permian assets. The oil major says the deal stitches together a 75-mile-wide strip of continuous land in the Delaware Basin, a sweet spot within the larger Permian. That allows Chevron to bring efficient, industrial-scale production to the shale field, the company says.

"We are confident the transaction agreed to by Chevron and Anadarko will be completed," said Kent Robertson, manager for global external affairs for Chevron.

VIDEO7:5807:58
Chevron CEO Michael Wirth talks Anadarko Petroleum acquisition

Hollub counters that Occidental is outperforming other drillers in the Permian, squeezing more oil from the region's shale rocks at lower cost.

According to Hollub, Occidental's oil wells in the Delaware Basin perform about 74 percent better than Anadarko's. Hollub says Occidental also spends less to drill wells and to perform hydraulic fracturing, the process of injecting water and minerals underground to create fractures in shale formations, allowing oil and gas to flow.

Occidental could apply its expertise to 10,000 wells if it purchased Anadarko, Hollub said.

"In the two years that we've been working this, there is no other opportunity that has the upside potential that this does," she said. "This is one of those very rare opportunities."

Occidental says the deal can increase free cash flow by $3.5 billion over the next two years through synergies and capital reduction. The company will achieve those savings by applying logistics solutions and proprietary drilling software and modeling to Anadarko's operations, says Hollub.

In addition to enhancing the Permian wells, Hollub says Occidental can improve Anadarko's performance in Colorado's DJ Basin, where it holds a leading position.

She notes that Occidental has drilled 23 of the top 100 wells in the Permian, but rivals on the list used 27 percent more proppant, the sand and minerals critical to fracking. That creates about half a million dollars in savings per well, she said.

VIDEO6:0906:09
Occidental makes formal proposal to buy Anadarko

Analysts have said Anadarko's assets in the Gulf of Mexico and its Mozambique liquefied natural gas hub currently under development align with Chevron's project portfolio but are not a natural fit for Occidental. Hollub says those assets only make up 15 percent of the deal's value.

Mizuho Securities downgraded Occidental's stock and cut its price target from $83 to $70 a share on Monday, prompted by reporting by CNBC's Faber that Occidental was pursuing Anadarko.

Mizuho analyst Paul Sankey said the pursuit implies one of two things: Occidental is totally changing its strategy or the company needs to acquire Anadarko to generate free cash flow, suggesting its ability to cover its dividend payment to shareholders is not as strong as Mizuho believed.

"Our understanding of Oxy strategy, as presented by the company, and our investment thesis, rested on the company's ability to accretively grow Permian production and cash flow to pay an increasing dividend," Sankey said. "That is now an open but undefined question."

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Key Points
  • Occidental Petroleum bids $76 a share for Anadarko Petroleum in a half-cash, half-stock offer that values the oil and gas driller at $57 billion.
  • Chevron announced an agreement on April 12 to buy Anadarko for $65 a share in a 75% stock and 25% cash transaction.
  • Anadarko shares jump 10% in Wednesday's premarket trading to above $70.