An All-Stock Deal Worth $6.3 Billion Between Chevron And Pdc Energy Is Worth Nearly 11% More Than Expected

Chevron Corp. announced this Monday that it has reached an agreement to acquire PDC Energy Inc., an oil and gas producer based in Colorado, in an all-stock transaction valued at $6.3 billion. When including debt, the deal's total value amounts to $7.6 billion.

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Following the announcement, PDC shares surged 7.9% in premarket trading, while Chevron's stock declined 1.2%.

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As per the terms of the agreement, PDC shareholders will receive 0.4638 Chevron shares for each PDC share they own. Based on Chevron's closing stock price of $155.23 on Friday, the deal values PDC shares at $72 each, representing a 10.6% premium compared to PDC's closing price of $65.12 on Friday.

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Chevron CEO Mike Wirth stated, "PDC's attractive and complementary assets strengthen Chevron's position in key U.S. production basins."

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The transaction is expected to be completed by the end of 2023. Chevron anticipates that the deal will contribute positively to all significant financial measures within the first year after closing. It is projected to generate approximately $1 billion in free cash flow annually, assuming Brent crude at $70 per barrel and Henry Hub natural gas at $3.50 per thousand cubic feet (MCF).

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Moreover, the acquisition will increase Chevron's proved reserves by 10% at an acquisition cost of $7 per barrel of oil equivalent (BOE). Chevron also plans to raise its capital expenditures (capex) by approximately $1 billion per year, resulting in an updated capex guidance range of $14 billion to $16 billion through 2027.

The anticipated synergies from the transaction are estimated to be around $100 million.

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Year to date, PDC's stock has gained 2.6% as of Friday, while Chevron's stock has experienced a 13.5% decrease. The Energy Select Sector SPDR exchange-traded fund (ETF) has seen a decline of 9.0%, while the Dow Jones Industrial Average has registered a 0.8% increase.

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