HOUSTON — In the first big deal since oil prices crashed four months ago, Chevron agreed Monday to buy Noble Energy for roughly $5 billion in what many experts consider the beginning of a sweeping consolidation in the US oil industry.
The coronavirus pandemic has caused a sharp decline in oil demand, putting intense pressure on oil companies with large debts. This includes Noble, which is based in Houston and has operations in Colorado, Texas, the eastern Mediterranean and West Africa.
But it has also created an opportunity for oil giants to gobble up smaller fish and extend their acreage in places like the Permian Basin, which straddles Texas and New Mexico. Chevron, for one, already has a large presence in the basin and easy access to large pipeline networks, which should help the company put Noble’s assets to good use.
“In a downturn like this the strong get stronger, and the weaker players try to survive as best they can, and some will be bought,” said Duane Dickson, Deloitte’s vice chairman and US oil, gas and chemicals leader. “There will be some bankruptcies and mergers and acquisitions like you saw today, and I would expect that will continue and potentially pick up speed.”
Like all oil companies, Noble has struggled to make a profit with oil prices at around $40 a barrel. The price has recovered somewhat in recent months, but the pandemic’s persistence and the recent surge of infections and hospitalizations in Texas and other states have led some executives to conclude that the price of oil may not climb much more anytime soon.
Even before the pandemic, the shale drilling boom helped produce so much oil that a growing number of wells were unprofitable. More than 20 North American producers have filed for bankruptcy this year, including Chesapeake Energy. Oil service giant Halliburton on Monday reported a $1.7 billion loss for the second quarter and said it had written down its assets by $2.1 billion.
Even big companies like Chevron have been forced to lay off workers. Oil companies have also slashed dividends and curtailed stock buybacks to preserve cash.
Though relatively small, the Chevron-Noble deal could signal a measure of confidence on the part of industry executives who are willing to buy up smaller companies in anticipation of a recovery in the not-too-distant future.
“Our strong balance sheet and financial discipline gives us the flexibility to be a buyer of quality assets during these challenging times,” said Michael Wirth, Chevron’s chief executive. “This is a cost-effective opportunity for Chevron to acquire additional proved reserves and…
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