Chevron’s Looking Shale And Hearty With Its New Purchase

Chevron’s Looking Shale And Hearty With Its New Purchase
Daniel Johnston

7 months ago2 mins

What’s going on here?

Chevron’s staying fighting fit with the purchase of PDC Energy, a smaller oil and gas rival, it announced on Monday.

What does this mean?

Oil giants have been raking in the money for the past couple of years – and Chevron, with a $16 billion pile of cash at the end of last quarter, has channeled its inner spendthrift. The firm bagged PDC Energy in a deal worth $8 billion, overshooting the smaller company’s pre-deal value by over 10%. In the long run, that could turn out to be a bargain: this move will boost Chevron’s shale holdings in Colorado and West Texas, adding an estimated 10% to the firm’s proven reserves. And it’s expected to make Chevron’s cash register sing to the tune of an extra $1 billion a year too.

PDC Energy stock
Source: Google Finance

Why should I care?

The bigger picture: Oilfield minefield.

With several other oil giants bathing in their own Scrooge McDuck-like pools of cash, the stage seems set for a full-blown takeover bonanza. In fact, McKinsey thinks that North America could witness up to $230 billion worth of oil and gas deals this year. And the Permian Basin – the biggest oilfield in the US – could serve as the prime hunting ground. That’s not necessarily good news for us regular folk, though: companies often secure drilling sites there for use down the line – so these acquisitions could limit supply in the meantime, boosting prices and squeezing consumers even tighter.

Oil and gas cash
Source: McKinsey & Company

For markets: The kiss of debt.

If the International Energy Agency is right, then an oil shortage might strike in the second half of this year – kickstarting a profit-producing fiesta for oil companies. But every party has a pooper (or something like that), and this time it’s the US debt ceiling. After all, the oil market can only get so hot with the prospect of defaulting (and in turn, a downturn) threatening to rain on its parade.

Oil supply and demand
Source: IEA


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