Oil and Gas

Anadarko to pursue deal talks with Occidental Petroleum: Sources

Key Points
  • Anadarko Petroleum has decided to begin negotiations to sell itself to Occidental Petroleum, according to people familiar with the matter.
  • Earlier this month, the U.S. oil and gas exploration and production company had agreed to sell itself to Chevron for $33 billion.
  • Anadarko's board of directors has decided that Occidental's $38 billion cash-and-stock bid could lead to a deal that would be superior to the one it has with Chevron, the sources said.
Fracking crews at an Anadarko Petroleum Corporation site near Brighton, northern Colorado.
RJ Sangosti | The Denver Post | Getty Images

Anadarko Petroleum, the U.S. oil and gas exploration and production company that agreed this month to sell itself to Chevron for $33 billion, decided on Sunday to begin negotiations to sell itself to Occidental Petroleum instead, according to people familiar with the matter.

The bidding war for Anadarko underscores the value of its assets in the lucrative Permian Basin of West Texas and New Mexico. The vast shale field holds oil and gas deposits that can produce supplies for decades using low-cost drilling techniques.

Anadarko's board of directors has decided that Occidental's $38 billion cash-and-stock bid could lead to a deal that would be superior to the one it has with Chevron, the sources said. Without such a formal determination, Anadarko's contract with Chevron prevented it from engaging with Occidental.

Anadarko will now kick off negotiations with Occidental to see if it can finalize a deal, the sources said.

There is no certainty that Occidental, which was vying for Anadarko before Chevron clinched its deal, will be able to secure its own deal, the sources said.

If it does, Chevron will be given a chance to match the new deal. If Chevron finally loses out to Occidental, Anadarko would have to pay Chevron a $1 billion break-up fee, according to the terms of their agreement.

The sources asked not to be identified because the matter is confidential.

Anadarko and Occidental did not immediately respond to requests for comment. Chevron spokesman Kent Robertson declined any immediate comment.

The acquisition of Anadarko would add nearly a quarter million acres to Occidental's holdings in the Permian shale basin, and double its global oil and gas production to 1.4 million barrels of oil equivalent per day.

Occidental unveiled its bid for Anadarko last Wednesday, offering to pay for it half in cash and half with its own shares. Chevron's deal with Anadarko was structured as 25% cash and 75% stock.

Chevron declined to say on Friday during its earnings call how it would respond if Anadarko's board determined Occidental's proposal the better of the two deals. Chevron's finance chief Pierre Breber, however, said the company had the ability to put more cash into its deal.

A key hurdle that Occidental has to overcome in its negotiations with Anadarko is that its proposed deal is contingent on Occidental shareholders voting to approve it. A deal with Chevron offers more certainty to Anadarko in that regard, because Chevron shareholders will not be given a vote.

Anadarko shareholders will be given a vote on the sale of the company, be it with Occidental or Chevron.

Next Article
Key Points
  • Chevron plans to increase its share buyback program to $5 billion per year once it completes its acquisition of Anadarko Petroleum.
  • CEO Michael Wirth confirmed that the $1 billion increase is contingent on Chevron winning a battle with Occidental Petroleum to buy Anadarko.
  • Wirth says Chevron could back out of the deal if Anadarko shareholders ask his company to increase its bid past a certain level.