Occidental Petroleum’s $12B CrownRock Acquisition to Reshape Permian Basin Energy, Includes Dividend Hike

In a monumental move aimed at reshaping the Permian Basin’s energy domain, Occidental Petroleum has struck a $12 billion deal to acquire CrownRock, a major player operating extensively in the Permian Basin.

The acquisition comes amidst a flurry of consolidation sweeping through the U.S. energy sector, particularly in the Permian, known as the nation’s largest oil-producing region. The transaction is slated for closure in the first quarter of 2024.

CrownRock’s stronghold lies in its development of a vast 100,000-acre expanse within the Midland Basin, a pivotal segment of the Permian spanning 20 counties in western Texas. In 2020, the Midland Basin contributed 15% of U.S. crude, as per the U.S. Energy Information Agency.

Occidental’s move will seamlessly integrate 170,000 barrels of oil equivalent per day from CrownRock into its production portfolio, along with an additional 1,700 undeveloped sites within the Permian.

To facilitate this acquisition, Occidental plans to issue $9.1 billion in debt and approximately $1.7 billion in common stock.

Vicki Hollub, CEO of Occidental, highlighted the strategic nature of the purchase, stating, “It’s the scale, it’s the inventory, and all of that has helped now for us also to step up our dividend.” The company announced a hike in its quarterly dividend from 18 cents to 22 cents per share, effective from the coming year.

CrownRock, led by Texas billionaire Timothy Dunn and backed by Houston-based private equity firm Lime Rock Partners, stands as one of the last major private producers in the Permian, rivaled only by Endeavor Resources.

Occidental, currently the ninth-largest energy company in the U.S. with a market capitalization of $49.7 billion, holds Berkshire Hathaway as a major stakeholder, with Warren Buffett’s conglomerate owning approximately 26% of the company.

Hollub emphasized that Berkshire Hathaway was not directly involved in the CrownRock deal but revealed that discussions were held with Buffett regarding the alignment of the acquisition with Occidental’s overarching corporate strategy.

This acquisition marks Occidental’s significant move since its acquisition of Anadarko Petroleum for $55 billion in 2019, a deal that led to increased debt and internal disputes.

Hollub detailed Occidental’s strategy, aiming to reduce debt below $15 billion despite the substantial obligations incurred through the CrownRock acquisition. The company plans to achieve this by divesting domestic assets not core to its portfolio.

This landmark acquisition is the third major deal in the energy sector in under two months, following Exxon Mobil’s acquisition of Pioneer Natural Resources for about $60 billion and Chevron’s agreement to purchase Hess for $53 billion.

Hollub affirmed that Occidental’s decision to purchase CrownRock was independent of Exxon’s acquisition of Pioneer and addressed concerns regarding dropping oil prices. She expressed confidence in Occidental’s ability to remain profitable even with U.S. crude averaging $80 a barrel, despite West Texas Intermediate trading around $71 on Monday.

“We have the capability to continue to deliver value, maintain and even grow our production modestly,” Hollub stated, emphasizing Occidental’s resilience in navigating fluctuating crude prices.

Also read: Exxon in Advanced Discussions for $60 Billion Purchase of Pioneer, Sources Reveal