Chevron's Surprising Oil Deal Makes Perfect Sense

Oil giant Chevron (CVX -0.39%) jolted the oil market by agreeing to acquire Anadarko Petroleum (APC) for $50 billion. The deal looks like a smart move from several angles. As a result, it could spur rivals to follow its lead. In this segment from Industry Focus: Energy, host Nick Sciple and Fool.com contributor Matt DiLallo discuss:

• Chevron's primary reason for targeting Anadarko.
• Other reasons why the transaction makes strategic sense.
• How it could drive additional consolidation in the sector.

To catch full episodes of all The Motley Fool's free podcasts, check out our podcast center. A full transcript follows the video.

This video was recorded on April 18, 2019.

Nick Sciple: Chevron announced a $33 billion mega-acquisition of Anadarko Petroleum last Friday. Matt, as we look back a week later, what's your reaction to that news?

Matt DiLallo: My reaction's still pretty surprised. Chevron didn't need to do any deals, and yet here they are, shocking everybody with the sixth-biggest oil deal in history. I was surprised by it. But the more I've looked into it, it's a really good deal for Chevron. It makes total sense. There's a lot of overlap. Plus, it adds some things to them. So I really like it, from that perspective.

Sciple: When you talk about the assets that Chevron's adding, how does this acquisition fit into their strategy, and how does that reshape their portfolio as they move forward as a business?

DiLallo: The big takeaway is, this really bulks them up in the Permian Basin. Anyone who's talked about oil the last couple of years, that's the big deal in energy these days. It's just loaded with oil and gas. It makes them one of -- if not the biggest -- drillers, landowners, producers in that region. That was the big draw. However, it adds a couple of other shale plays. Anadarko is really big in what's called the D-J Basin which is in Colorado. It's not as well-known as some of the other ones but a lot of oil and gas there. And then they got some land in what's called the Powder River Basin, which is in Wyoming. It's an emerging play. Chesapeake Energy calls it the oil growth engine of the company. So it adds a lot of shale potentially, but also, Gulf of Mexico, there's a lot of overlap. Big boost for Chevron in the Gulf of Mexico.

The third one is LNG. Chevron has some LNG assets in Australia. They pick up Anadarko's project in Mozambique, which is a world-class play, a lot of gas there. They're able to leverage what they did in Australia to develop this place. A lot of interesting parts with this deal.

Sciple: Yeah. When you have one of these big major oil players like Chevron getting a deal like this, really exciting to see how things develop. Matt, is there any chance that we see some follow-on bids related to this deal? I saw some news out that Occidental Petroleum had a deal out where they'd bid $70 a share. This Chevron deal is about $65 a share. Do you think there's any chance we see some follow-on competing bids here? Or do you think this is a done deal?

DiLallo: I think this is a done deal. This does not make sense for Occidental Petroleum. I really don't know what they were into other than it'll boost some of the Permian, but they don't have anything in the Gulf of Mexico. They're not into LNG. So it really doesn't make as much sense strategically. However, a lot of the other pure-play Permians make a lot of sense for not only Occidental, but a company like Shell, which really needs some boosts in the Permian, Exxon, the Permian is huge for them. So I could see names like Continental Resources, Pioneer Natural Resources, Parsley Energy, there's just a huge list of independents out there that could easily be bought up by one of these major oil companies.

Sciple: Yeah, definitely something to continue to watch. In an industry like shale, that's been the Wild West for a while, to see some consolidation and maturing of the industry, is something I'd like to see as an investor.