America's oil giants are growing at the expense of a checkbook. After the multi-million dollar operations of Exxon Mobil and shortly thereafter Chevron two months ago, it is now Occidental that is taking the plunge. The Houston (Texas)-based company, which through Berkshire Hathaway has Warren Buffett as a reference shareholder, announced this Monday the acquisition of CrownRock for 12 billion dollars (around 11.15 billion euros), including the assumption of the acquired company's debts. CrownRock produces shale oil obtained through hydraulic fragmentation (fracking). It is another step in the consolidation of the fossil fuel sector in the United States.
The transaction complements Occidental's Permian Basin portfolio by adding approximately 170,000 barrels of oil equivalent per day of high-margin unconventional production and approximately 1,700 undeveloped locations. The purchase increases Occidental's holdings of sub-$40 Permian unconventional fields by 33%.
Occidental expects the acquisition of CrownRock to generate higher free cash flow, including $1 billion in the first year, assuming the price is $70 per barrel of WTI crude oil. The transaction is expected to close in the first quarter of 2024, subject to regulatory approvals.
The company plans to fund operations with $9.1 billion of new debt and the issuance of approximately 1.7 billion new shares, as well as the assumption of $1.2 billion of CrownRock's debt, as explained in a statement. The increase in cash flow, as well as proceeds from a new divestment program of $4.5 billion to $6 billion, will allow Occidental to reduce its debt by at least $4.5 billion within 12 months, according to the company maintain its investment grade credit rating.
Ahead of the operation, Occidental's corporate jet flew from Houston, where its headquarters are located, to Omaha, Buffett's hometown, on Nov. 27 and remained on the ground for about three hours. It was the second time the Oxy plane visited Omaha in November, having not done so since May, according to flight data cited by Bloomberg.
CrownRock, based in Midland, Texas, is backed by venture capital firm Lime Rock Partners and led by Tim Dunn, an influential Republican donor who has spent more than $20 million supporting conservative politicians over the past decade, according to Bloomberg data. He is considered a major donor in the 2024 elections. He currently has not made donations to Donald Trump's campaign this year, but has made donations in 2020.
Occidental's financial advisor is BofA Securities and a subsidiary of Bank of America is providing financing for the transaction. Occidental's legal counsel is Latham & Watkins. CrownRock's financial advisors are Goldman Sachs and TPH&Co, the energy division of Perella Weinberg Partners. CrownRock's legal counsel is Vinson & Elkins.
“We believe the acquisition of CrownRock's assets complements the strongest and most differentiated portfolio Occidental has ever had. “We believe CrownRock is a strategic fit that gives us the opportunity to build scale in the Midland Basin and enables us to drive value creation for our shareholders through immediate free cash flow accumulation,” said Vicki, president and CEO of Occidental Hollub. “We are excited to bring CrownRock’s high-performing team into our organization and look forward to continuing Occidental’s exceptional operational and financial results in the years ahead,” he added.
Unlike traditional crude oil, shale oil and shale gas typically occur in smaller pockets, and hydraulic fracturing (fracking) is often necessary to release hydrocarbons trapped in the rock, making the technique controversial. The extraction process is more expensive, but with high oil prices it allows the extraction of reserves that were previously considered unprofitable.
Occidental's deal with CrownRock follows Exxon Mobil, the largest U.S. oil company, buying fracking giant Pioneer for $60 billion and Chevron agreeing to acquire its rival Hess for $53 billion. The deals come as the North American shale oil and gas sector is maturing and growth is slowing. With many of the best fields already exploited, companies flush with cash thanks to the post-pandemic surge in oil prices are buying up more rivals to keep up with the pace of stock buybacks and dividends demanded by investors.
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