Occidental Petroleum, a major player in the U.S. energy sector, has made a significant move by agreeing to acquire CrownRock, a leading energy producer in the Permian Basin, for a staggering $12 billion. This acquisition marks a major consolidation in the U.S. energy industry, particularly in the Permian, which is the largest oil-producing region in the country. The deal is set to be finalized in the first quarter of 2024.
CrownRock, currently developing a substantial 100,000-acre position in the Midland Basin, a key area within the Permian that spans across 20 counties in western Texas, is one of the last major private producers in the region. This acquisition is poised to enhance Occidental's production significantly, adding 170,000 barrels of oil equivalent per day and 1,700 undeveloped locations to its operations in the Permian.
The financial structure of the deal involves Occidental issuing $9.1 billion in debt and approximately $1.7 billion in common stock. Vicki Hollub, CEO of Occidental, emphasized the strategic nature of this purchase, aimed at increasing the company's scale in the Midland Basin. "It's the scale, it's the inventory, and all of that has helped now for us also to step up our dividend," Hollub stated during an interview on CNBC's "Squawk Box." Reflecting this strategy, Occidental plans to raise its quarterly dividend to 22 cents a share from 18 cents, starting next year.
CrownRock's significance in the Permian Basin is underscored by its leadership under Texas billionaire Timothy Dunn and backing from Houston-based private equity firm Lime Rock Partners. This acquisition by Occidental, the ninth-largest energy company in the U.S. with a market capitalization of $49.7 billion, is a bold step, especially considering the company's history of major acquisitions, including the contentious purchase of Anadarko Petroleum for $55 billion in 2019.
Despite the financial obligations brought by this acquisition, Hollub expressed confidence in Occidental's ability to manage its debt effectively, with plans to reduce it below $15 billion. This strategy involves divesting some domestic assets not core to Occidental's portfolio, combined with the company's robust cash flow.
The energy sector has seen several major deals recently, with Exxon Mobil acquiring Pioneer Natural Resources for approximately $60 billion and Chevron purchasing Hess for $53 billion. These acquisitions underscore the ongoing reshaping of the energy industry, with major players expanding their inventories and consolidating their positions in key oil-producing regions.
Hollub clarified that Berkshire Hathaway, which owns about a 26% stake in Occidental, was not involved in the CrownRock deal, though discussions about the company's corporate strategy were held with Warren Buffett.
This deal comes at a time when the energy industry is navigating a complex market environment, including fluctuating oil prices. Hollub expressed a prudent stance on U.S. producers' role in market supply, and the company's breakeven capability with oil priced at $40 a barrel.
The acquisition of CrownRock represents a significant milestone for Occidental Petroleum, underscoring its commitment to growth and strategic expansion in the competitive and ever-evolving energy sector.
