Chevron Investing $33 Billion in Oil Expansion

April 16, 2019
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Chevron Corp. (NYSE: CVX), one of the largest energy companies in the world, is investing $33 billion into its big oil expansion. The company announced last week that it intends to purchase Anadarko Petroleum (NYSE: APC), a shale and gas company that has access to 1.5 billion barrels of proven oil reserves. This will expand Chevron’s position in the production and exploration sector.

What will this acquisition mean for shareholders in the future?

Chevron Investment is a Long-Term Growth Strategy

Chevron operates a network of almost 8,000 gas stations throughout the United States and owns eight petroleum refineries. The acquisition of Anadarko will give the company a larger stake in crude oil exploration and production, creating a more streamlined flow of petroleum from the source, right down to consumers.

The acquisition will include access to shale oil sources as well as conventional sources in the Gulf of Mexico. It will also include natural gas sources in Mozambique, Africa.

Chevron will purchase Anadarko at $65 per share. Stock in the company closed at $62.26 in the first session of this week.

The acquisition will be made possible through $8 billion in cash, the issuing of 200 million new Chevron shares, and $15 billion in debt. While this will be a significant short-term expense, it is expected that Chevron will be able to start making money from the investment in a relatively short period. The company expects to achieve $2 billion in annual cost savings within a year of closing the deal.

Chevron will also offload $20 billion in current assets over the next two years, with the proceeds going to debt reduction and shareholder returns. The company intends to buy back up to $5 billion in stock over the next five years, which will further benefit shareholders.

How Long Until the Deal is Confirmed?

Anadarko shareholders will need to approve the sale before the second half of this year for Chevron to move ahead with the acquisition. The sale would also need to be approved by regulators. Industry insiders don’t anticipate any strong resistance to the deal, and it could close in either the third or fourth quarter of this year.

Chevron stock is currently up 10.43% since the start of this year, falling slightly below the 15.91% growth across the entire S&P 500. The average analyst consensus is that the stock is overperforming, and the current target price of $138.30 indicates confidence for continued growth.

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