To win that prize, Occidental outlasted Chevron — a company five times its size. Occidental CEO Vicki Hollub said the deal further establishes her company as a premier operator able to boost production.
The bidding war surprised those who follow the energy sector. No one had seen a similar grab in decades. Ambitions have grown, however, in the race to seize a piece of the choice oil and gas fields spread across the Permian.
"It's truly a real estate question," said Mike Sommers, CEO of the American Petroleum Institute, a trade group representing more than 600 companies in the oil and gas industry. "Who has the real estate, where the resource is, and Anadarko clearly has key resources within the Permian Basin."
With so few major operators in that area of the country, future acquisition targets will likely be smaller than the sum that Occidental spent for access to such rich real estate. "I think we should pay attention to those smaller producers that have significant resources within the Permian basin," Sommers said.
Occidental agreed to pay $59 in cash and 0.2934 of an Occidental share for each share of Anadarko common stock. Houston-based Occidental put the deal's value at $57 billion, including the assumption of Anadarko's debt.
Anadarko, which is based in The Woodlands, Texas, will pay a $1 billion break-up fee to Chevron, which agreed in April to buy the company for $33 billion. The deal is expected to close in the second half of this year. It would need approval by Anadarko shareholders and U.S. regulators. Chairman and CEO Al Walker said the outcome delivered significant immediate value to Anadarko shareholders.
Occidental has lined up financing for the cash part of the transaction, according to the companies. The deal does not need approval by Occidental stockholders. Occidental's bid gained momentum two weeks ago when Warren Buffett's Berkshire Hathaway said it would put up $10 billion in financing for Occidental.
The decision by Chevron Corp. to retreat came one day before its deadline to make a revised proposal or a new offer. "Winning in any environment doesn't mean winning at any cost," Chevron Chairman and CEO Michael Wirth said in a statement. "Cost and capital discipline always matter."
Chevron said that it won't sit on the money it pulled from the table Thursday. The company, based in San Ramon, California, plans to spend 25% more on share repurchases, up to $5 billion a year. Occidental fell $3.88, or 6.4%, to close at $56.33 before the final agreement was announced. Anadarko dropped $2.47, or 3.3%, to $73.39. Chevron shares rose $3.69, or 3.1%, to close at $121.19.