What happened

Shares of oil and gas driller Noble Energy (NASDAQ:NBL) jumped 10% right out of the gate on July 20. That's not at all shocking given that integrated energy giant Chevron (NYSE:CVX) agreed to buy the company. Here are the details.

So what

In an all-stock deal, oil giant Chevron will pay $5 billion for Noble Energy. That works out to $10.38 per share, a roughly 7.5% premium over where the stock closed on July 17, the last trading day before the deal was announced. Noble Energy shareholders will receive 0.1191 shares of Chevron for each Noble Energy share they own.   

A man with a notebook in front of an oil well

Image source: Getty Images.

Chevron noted that the acquisition will broaden its reach in the Mediterranean and augment its low-cost U.S. onshore portfolio at a price it considers attractive. Effectively, Chevron is using its size, financial strength, and global reach to make an opportunistic acquisition. Chevron's stock was down slightly on the announcement. 

The big question for Noble shareholders, however, is why did the target's stock rise more than 7.5%? The answer is likely that some investors think there will be another suitor willing to offer a higher price, much like what happened the last time Chevron tried to buy a company. In that case, Occidental Petroleum wound up the winner after Chevron backed out of the bidding. However, in the end, Occidental ended up overpaying and has been struggling to pay down deal debt since it acquired Anadarko Petroleum in the second half of 2019.   

Now what

When Occidental took on Chevron in an acquisition bid, the energy market was a very different place. Although it's nice to see Chevron flexing its muscles again, using stock and not cash, investors shouldn't rush in here thinking that the next step is a bidding war for Noble Energy. And, at this point, it looks like the news is largely priced into Noble Energy's shares. That said, by 10 a.m. Wall Street time, Noble Energy's stock was up just 6.5%, suggesting that a more rational mood has quickly developed here.