Occidental Completes CrownRock Acquisition

Occidental Petroleum Corp. announced Thursday the finalization of its purchase of Permian Basin competitor CrownRock LP at a higher-than-expected price of about $12.4 billion.

“By completing this transaction, Occidental adds assets that we believe make the best portfolio in our company’s history even stronger and more differentiated”, chief executive Vicki Hollub said in a brief statement on Occidental’s website.

“We also welcome new team members who will combine with ours to form a high-performing employee base that is focused on safely and efficiently developing low-emission, low-cost energy”.

Midland, Texas-based CrownRock expands Houston, Texas-based Occidental’s license area in the Permian by 94,000 acres, according to the announcement of the merger deal December 11, 2023. The assets are expected to add an average daily volume of 170,000 barrels of oil equivalent to Occidental’s production this year.

The cash and stock transaction was valued around $12 billion when announced last year.

The final price increased approximately $4 million and comprised “approximately $9.4 billion in cash (inclusive of certain working capital and other customary purchase price adjustments), 29,560,619 shares of Common Stock, and the assumption of $1.2 billion of existing debt of CrownRock and its subsidiaries”, Occidental said separately in a regulatory disclosure. The shares that Occidental issued to CrownRock investors as part of the merger agreement had a par value of $0.2 per unit.

Divestitures and Deeper Indebtedness

Warren Buffett-backed Occidental said in the December announcement of the merger that it would incur an additional $9.1 billion debt to fund the acquisition. Last week it launched a bond sale with a combined principal amount of $5 billion to help pay the purchase from CrownQuest Operating LLC and Lime Rock Partners.

The five-tranche debt sale consists of senior unsecured notes maturing 2027, 2029, 2032, 2034 and 2054. Supporting banks include BofA Securities Inc., JP Morgan Securities LLC, MUFG Securities Americas Inc., SMBC Nikko Securities America Inc., Citigroup Global Markets Inc., HSBC Securities (USA) Inc., RBC Capital Markets LLC, Standard Chartered Bank TD Securities (USA) LLC and Wells Fargo Securities LLC.

Occidental will make semi-annual interest payments starting 2025 for all five tranches. The terms allow Occidental to redeem any of the notes any time at pre-determined prices, according to filings with the United States Securities and Exchange Commission (SEC).

Concurrently, Occidental has offered to exchange $376.08 million worth of notes and cash with holders of outstanding CrownRock notes that have a five percent coupon and are due 2029. The exchange offer was launched July 19, 2024.

On July 15, 2024, CrownRock issued a notice of redemption to the holders of the remaining notes, which have a combined principal amount of $868.1 million. The redemption can now proceed as the acquisition has been completed, as agreed between CrownRock and Occidental, according to an Occidental filing with the SEC July 19, 2024.  

Occidental had already secured a term loan agreement for $4.7 billion to finance the acquisition. Meanwhile, a $10 billion bridge facility for the acquisition has been reduced to $5.3 billion after Occidental entered the term loan agreement, according to SEC filings.

Additionally, Occidental on May 16, 2024, secured an amendment to its existing revolving credit facility expanding it to $4.15 billion. The facility’s maturity had earlier been extended to June 2028, according to SEC filings.

Occidental, which also produces chemicals besides oil and gas, plans to sell $4.5 billion–$6 billion worth of assets to keep debt manageable in light of the CrownRock purchase, according to last year’s announcement of the merger. On Tuesday, Occidental announced an agreement to sell about 29,500 net acres in the Delaware Basin to Permian Resources Corp. for around $818 million and said it had completed several divestments totaling approximately $152 million. Occidental has so far announced or completed $970 million worth of divestments this year according to the company.

Anti-Trust Probe

The Occidental-CrownRock merger had undergone an extended fair competition review by the Federal Trade Commission (FTC). The regulator on January 19, 2024, made a so-called “second request” for transaction details to Occidental and CrownRock, extending the waiting period for clearance. On July 19, 2024, Occidental said the merger had cleared the in-depth investigation and gave August as the expected time of the transaction’s consummation, which has now been achieved earlier.

There has been a recent flurry of oil and gas majors in the U.S. absorbing smaller rivals, sparking concerns in Congress about further consolidation in the industry.

On July 20, 2024, Bloomberg reported, citing unnamed sources, that the FTC had launched an investigation into whether executives at oil and gas majors including Occidental, Diamondback Energy Inc. and Hess Corp. had colluded with officials of the Organization of the Petroleum Exporting Countries (OPEC) to influence the market. Chevron Corp.’s $60 billion acquisition of Hess and Diamondback’s $26 billion acquisition of Endeavor Energy Resources LP have also been subject to second requests by the FTC. Both transactions have yet to be completed.

The FTC is reviewing communications sent by these executives as part of the search for evidence, according to Bloomberg.

“The agency is looking for a so-called smoking gun to be able to refer a shale cartel case to the Justice Department”, Bloomberg said, citing one of the sources. The sources asked not to be named for disclosing non-public information.

Hess told Bloomberg in a statement, “These allegations of improper communications are baseless and without merit”.

Earlier the FTC accused former Pioneer Natural Resources Co. chief executive Scott Sheffield of scheming with representatives from OPEC and OPEC ally countries to curb production to boost prices.

The FTC banned Sheffield from holding a board or advisory position in Exxon Mobil Corp. as a condition in granting anti-trust clearance for the $64.5 billion ExxonMobil-Pioneer merger, according to an FTC statement May 2, 2024. ExxonMobil announced the completion of the merger May 3, 2024.

Ecopetrol Rights

Occidental also said Thursday that Ecopetrol SA had withdrawn a plan to acquire a significant stake in CrownRock assets, which Occidental would have been obliged to grant due to a joint venture agreement (JV) it signed 2019 with the Colombian majority state-owned oil company.

“On July 31, 2024, Ecopetrol informed Occidental that it has decided not to acquire any interest in the CrownRock assets”, Occidental said in a separate SEC filing.

When Occidental and Ecopetrol formed the Rodeo Midland Basin LLC JV in 2019, they agreed to allow each other to participate in oil and gas interests in the Midland Basin acquired separately by the companies.

Ecopetrol told Occidental last May it intended to acquire 30 percent of CrownRock’s assets in the Midland, a Permian sub-basin, Occidental revealed in a filing July 19, 2024. Occidental expected to price the 30 percent stake at about $3.6 billion subject to adjustments.

To contact the author, email jov.onsat@rigzone.com