Anadarko Says It Now Favors Occidental Bid Over Chevron

Whichever suitor emerges victorious, the sale of Anadarko will be the largest deal in the global oil industry in three years.CreditCreditLoren Elliott/Reuters

https://www.nytimes.com/2019/05/06/business/energy-environment/anadarko-occidental-chevron.html

HOUSTON — In an escalating bidding war, Anadarko Petroleum said on Monday that it intended to reject its first suitor in a takeover bid, Chevron, after Occidental Petroleum came forward with a better offer.

The announcement by Anadarko’s board, a day after Occidental sweetened its bid with more cash, is far from a final decision. Chevron will now have four days to improve its offer, after which Occidental would have several days to revise its bid.

Bidding wars for big oil companies have been rare in recent years, and the Occidental-Chevron standoff has already seized the investment world’s attention. Occidental’s chief executive, Vicki Hollub, has emerged as one of the nation’s most prominent oil executives by challenging Chevron, a giant four times the size of her company.

“Known for her love of Alabama football, Oxy C.E.O. Vicki Hollub is ripping up the playbook and running an all-out offense on the Anadarko board,” Paul Sankey, an oil and gas analyst with Mizuho Financial Group, wrote in a research note to clients on Monday morning.

Whichever suitor emerges victorious, the sale of Anadarko will be the largest deal in the global oil industry in three years and establish a dominant producer in the Permian Basin of Texas and New Mexico, the most productive oil field in the world.

In a statement on Monday evening, Anadarko said it “intends to terminate the Chevron merger agreement in order to enter into a definitive merger agreement with Occidental in connection with the revised Occidental proposal.”

Occidental has made four offers for Anadarko in the last two years, but the bidding war began in earnest two weeks ago when Occidental proposed a $38 billion takeover, several billion dollars more than Chevron’s bid. A spokesman for Chevron said on Monday that the company had no comment on Anadarko’s decision.

Over the last week, Occidental won a $10 billion investment from Warren E. Buffett’s Berkshire Hathaway to help finance the acquisition. Then on Sunday, Occidental said it had lined up a sale of Anadarko’s assets in Algeria, Ghana, Mozambique and South Africa to Total, the French oil company, for $8.8 billion.

In a twist on Sunday night, Occidental raised the cash portion of its proposed acquisition of Anadarko to 78 percent, from 50 percent, further increasing the pressure on Anadarko and Chevron. Anadarko’s board said it still preferred a deal with Chevron but kept the door open to further negotiations.

The takeover battle has made meaningful waves beyond the three oil companies directly involved. If Occidental wins, Total stands to become a dominant producer of liquefied natural gas in Africa. Mr. Buffett is making a big bet on oil just a few years after Berkshire Hathaway sold its shares in Exxon Mobil.

The primary prize in the bidding war is Anadarko’s 600,000 acres of shale-oil holdings in the Permian Basin. Industry experts say those parcels are among the most lucrative in the United States. The company has identified 10,000 drilling locations, which is near the operations of Chevron and Occidental.

The Permian produces four million barrels of oil a day, slightly more than the Ghawar field in Saudi Arabia, previously the most productive in the world. The basin accounts for one-third of American oil supplies and exceeds the output of every member of the Organization of the Petroleum Exporting Countries except Saudi Arabia and Iraq.

The takeover of Anadarko would add to the concentration of Permian assets in the hands of the biggest oil companies. Chevron, Exxon Mobil, Royal Dutch Shell and BP have all made big purchases in the basin over the last four years.

Some Wall Street analysts say the increased cash in Occidental’s offer made a big difference, in part because the company’s shareholders would no longer have to approve the deal since it is offering less than 20 percent of its shares. T. Rowe Price Group, a major holder of Occidental shares, had earlier indicated that it opposed the deal because it would weaken the company’s balance sheet.

But other analysts remain skeptical that Occidental can beat Chevron, which has much deeper pockets and could more easily integrate Anadarko’s natural-gas operation in Mozambique and its large offshore rigs in the Gulf of Mexico. Also, Anadarko would be obliged to pay a $1 billion breakup fee under the terms of its deal with Chevron.

“We do not believe Chevron would have to fully match Oxy to get this deal across the finish line,” analysts at Morgan Stanley said in a research note on Monday.

Occidental on Monday night welcomed Anadarko’s decision. In a statement, it said, “We have long been convinced that a strategic combination with Anadarko represents a compelling opportunity for shareholders of both Occidental and Anadarko.”

T. Rowe Price, Occidental’s sixth largest shareholder, reacted strongly against the deal on Monday by saying it would vote against the company’s board of directors at its annual meeting on Friday. The firm, which also holds shares in Anadarko and Chevron, said such a complex deal should have first earned the support of investors.

Ms. Hollub said raising the cash component of her offer was not intended to avoid a shareholder vote, only to be more competitive with Chevron.

A version of this article appears in print on May 7, 2019, on Page B1 of the New York edition with the headline: Anadarko Shifts Its Favor As Occidental Sweetens Bid. Order Reprints | Today’s Paper | Subscribe