Jul 21, 2020 - Energy & Environment

Chevron's deal to acquire Noble Energy might not be a trendsetter

A sign displaying the price of gasoline per gallon is seen at a Chevron gas station

Photo: Joe Raedle/Getty Images

Chevron's deal to snap up Noble Energy could usher in more oil-patch mergers, but it's hardly a sure bet.

Driving the news: The all-stock deal announced on Monday is the first big takeover during the pandemic-fueled oil bust.

  • But Chevron was on the hunt even before the crisis, and analysts are uncertain how many more deals are in the offing.

What they're saying: "This could certainly ignite a wave of additional consolidation, although that is by no means certain," Enverus analyst Andrew Dittmar said in a note.

  • He points out that M&As were already slow heading into the pandemic, but that the crisis has also created openings — if the stars align.
  • “This deal lays out the blueprint for what post-COVID consolidation will likely need to look like with all-stock consideration, a moderate premium, and asset fit and synergies that are an easy and natural story to tell investors," he said.

The intrigue: Raymond James analyst Pavel Molchanov tells me that "in the middle of a painful commodity down cycle, even the most liquid, stable companies are not automatically on the lookout for large-scale acquisitions."

  • "We need to be mindful of pressures on balance sheets from low commodity prices as well as dividends. No management team would want to jeopardize its balance sheet due to an ill-timed purchase," Molchanov said.

Yes, but: “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," Duane Dickson, a top Deloitte energy analyst, tells The New York Times.

  • “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."
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