Chevron, PDC Energy deal holds a few surprises for Wall Street

PDC’s assets are “attractive and complementary,” the energy giant said, bolstering its position in the Denver-Julesburg basin, or DJ Basin, a lesser-known oil and gas-rich area mostly in eastern Colorado and into parts of Wyoming, Nebraska and Kansas.

One aspect was the location.

The deal was “surprising” because Wall Street had been expecting a West Texas Permian acquisition for Chevron, Cowen analysts Jason Gabelman and Gabe Daoud said in a note. Chevron had also said it wasn’t about to acquire assets at the current high commodity prices, they said.

The DJ Basin is “a shale basin that tends to fall under the radar versus its higher profile neighbors,” Citi analyst Alastair Syme said in his note.

The deal is “all about” the shale basin, elevating Chevron from No. 3 player in the area to No. 1 by production, Syme said.

“We estimate that PDC brings around 15 years of inventory into the mix, although we would expect that number to increase through cost and infrastructure synergies,” the analyst said.

For Neal Dingmann at Truist, the location was not “terribly surprising given [Chevron’s] recent comments that suggest the DJ is among their highest well results.”

“What is surprising to us is we do not believe the deal was fully shopped across the industry, which could have potentially enabled an even higher bid for [PDC Energy],” he said.

PDC Energy’s “rationale might have been to quickly transact given past frustration to receive a notable trading multiple for various reasons,” including Colorado politics and operational “hiccups,” he said.

The deal likely will be “highly accretive” to Chevron with capex and operational synergies in the near term and potentially more in general and administrative synergies, Dingmann said.

Chevron stock traded lower on Monday and is down 14% year to date. PDC Energy’s shares, however, are up 11% in the year. That compares with gains of around 9% for the S&P 500 index.
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