Chevron on Thursday declined to increase its offer for Anadarko, cutting short the potential for a rare bidding war in the oil patch and allowing Occidental Petroleum to take control of the energy company and its rich fields in the Southwest of the United States.
Chevron's deal for Occidental would have energized its oil and gas drilling capabilities in Texas. but also the Gulf of Mexico, an important market for Louisiana, industry experts have said. The combination of assets potentially would have made Chevron the largest oil producer in the gulf, assuming it had kept all its rigs and didn’t shed anything as part of a merger.
While Occidental has a presence in Louisiana, it’s mainly on the petrochemical side, with its OxyChem subsidiary manufacturing chlorine and caustics at plants in Convent and Geismar.
Occidental challenged Chevron's initial bid last month, offering $57 billion in cash and stock, including debt and book value of noncontrolling interest. The offer from Chevron, a company five times the size of Occidental, was worth about $50 billion by the same metric.
"Winning in any environment doesn't mean winning at any cost," Chevron Chairman and CEO Michael Wirth said Thursday. "Cost and capital discipline always matter."
Chevron said that it won't sit on the money it pulled from the table Thursday. The company, based in San Ramon, California, plans to spend 25% more on share repurchases, up to $5 billion a year.
After calling Occidental's the superior bid earlier this week, Anadarko Petroleum Corp. must shell out a $1 billion breakup fee for terminating its deal with Chevron.
The bidding war surprised those who follow the energy sector. No one has seen a similar grab in decades. Ambitions have grown, however, in the race to seize a piece of the choice oil and gas fields spread across the Permian Basin in Texas and New Mexico.
"It's truly a real estate question," said Mike Sommers, CEO of the American Petroleum Institute, a trade group which represents more than 600 companies in the oil and gas industry. "Who has the real estate, where the resource is, and Anadarko clearly has key resources within the Permian Basin."
With so few major operators in that area of the country, acquisition targets will likely be smaller than the $57 billion Occidental parted with for access to such rich real estate.
"I think we should pay attention to those smaller producers that have significant resources within the Permian basin," Sommers said.