Occidental to pay $12 billion to buy private Permian Basin company CrownRock

By Steve Gelsi

Deal signals more potential tie-ups after CrownRock draws higher-than-expected price

Occidental Petroleum Corp. said Monday it would pay $12 billion for privately held CrownRock LP as oil companies take aim at the oil-rich Permian basin.

The deal price came in higher than initial reports of a deal in a sign that buyers remain keen for more acquisitions in the region.

"In North America, we will see an arbitrage of private to public players and smaller companies to bigger companies," said Cole Smead, chief executive officer and portfolio manager at Smead Capital Management, in an email to MarketWatch "[We] may end up with only 10 oil and gas companies in America. [Occidental] will be one of them."

Occidental (OXY) said the deal will add about $1 billion in cash flow in the first year based on prices of $70 per barrel.

The company also announced plans to raise $4.5 billion to $6 billion by selling assets in order to pay down debt it will issue for the CrownRock deal.

Occidental also said it would increase its quarterly common stock dividend by 4 cents a share to 22 cents a share beginning with its February 2024 declaration.

Occidental's stock rose by 0.7% on Monday afternoon.

Chris Semenuk, portfolio manager of the Tema Global Royalties exchange-traded fund ROYA, said Occidental has been under pressure to counter Exxon Mobil Corp.'s (XOM) $59.5 billion all-stock deal for Pioneer Natural Resources Co. (PXD).

The Pioneer acquisition and the CrownRock transaction "highlight that the Texas Permian Basin oil assets are still valuable," Semunuk said in an email to MarketWatch. "This should support the value of companies like Texas Pacific (TPL) and PrairieSky (PREKF) that collect royalty income from assets in the Permian Basin."

The Wall Street Journal reported late last month that Occidental was in talks to pay more than $10 billion for CrownRock.

Occidental plans to finance the deal with $9.1 billion of new debt and issuance of about $1.7 billion of common equity, while assuming $1.2 billion of existing CrownRock debt.

"The CrownRock assets are generally perceived to be of high quality, but investors are likely to question the merits of adding leverage to the Occidental balance sheet at this point in the cycle," said Peter McNally, global sector lead for industrials, materials and energy at Third Bridge.

Exxon Mobil's Pioneer Natural Resources acquisition as well as Chevron Corp.'s (CVX) acquisition of Hess Corp. (HES) are both being done with stock, not debt, he said.

"[Occidental's] leverage will come down through divestitures, but it will be dependent on the sustained health of the M&A market," McNally said.

The deal is expected to close in the first quarter of 2024.

CrownRock is a joint venture of CrownQuest Operating LLC and Lime Rock Partners.

TD Cowen reiterated an outperform on Occidental and said CrownRock ranks as "one of the most coveted remaining private Permian companies."

The deal is "effectively an expensive high-grading move," analysts said.

The acquisition includes 94,000 net acres with about 1,700 undeveloped locations near Occidental's legacy operations in Midland, Texas. It's expected to add 170,000 barrels of oil equivalent per day of unconventional production in 2024.

Mike Murphy contributed.

-Steve Gelsi

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12-11-23 1359ET

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