Expanding its footprint in the biggest U.S. oilfield, Occidental Petroleum (OXY.N) announced on Monday that it would acquire CrownRock, an energy producer specializing in the Permian region, for $12 billion in cash and stock, including debt.
Following Exxon Mobil’s (XOM.N) $60 billion acquisition of Pioneer Natural Resources (PXD.N) and Chevron’s $53 billion acquisition of Hess (HES.N) in October, investors are pressured on oil and gas companies to increase their stockpiles.
With the closing of the CrownRock agreement anticipated in the first quarter of 2024, Occidental will gain over 94,000 net acres in the Texas Midland basin and will increase its Permian production by 170,000 barrels of oil equivalent per day (boepd) in 2024. The region’s third-quarter production averaged 588,000 boepd.
“We found CrownRock to be a strategic fit, giving us the opportunity to build scale in the Midland Basin and positioning us to drive value creation for our shareholders with immediate free cash flow accretion,” Vicki Hollub, CEO of Occidental Petroleum, stated.
The $9.1 billion in new debt, approximately $1.7 billion in common equity, and the assumption of CrownRock’s $1.2 billion in existing debt will be used by Houston-based Occidental to finance the acquisition of the privately held oil and gas company CrownRock.
“The CrownRock assets are generally perceived to be of high quality, but investors are likely to question the merits of adding leverage to the Occidental balance sheet at this point in the cycle,” Peter McNally, an analyst at Third Bridge, said.
According to a company filing, Occidental had around $18.60 billion in debt as of September 30. The CrownRock transaction would mark Occidental’s first significant acquisition since its heavily criticized and indebted 2019 acquisition of rival Anadarko Petroleum.
In the upcoming year, the business intends to sell off new assets for between $4.5 billion and $6 billion, which will enable it to lower the principal amount of its debt by at least $4.5 billion.
