Occidental Petroleum to buy Permian producer CrownRock for $12 billion, raise dividend

Occidental Petroleum on Monday agreed to buy CrownRock, a major privately held energy producer that operates in the Permian Basin, for $12 billion.

The deal is latest in a spate of consolidation in the U.S .energy sector, particularly in the Permian, the largest oil-producing region in the U.S. The transaction is expected to close in the first quarter of 2024.

CrownRock is developing a 100,000-acre position in the Midland Basin, a portion of the Permian that spans 20 counties in western Texas. The Midland Basin produced 15% of U.S. crude in 2020, according to the U.S. Energy Information Agency.

The transaction will add 170,000 barrels of oil equivalent per day to Occidental’s production as well as 1,700 undeveloped locations to the company’s operations in the Permian.

Occidental will issue $9.1 billion in debt and about $1.7 billion in common stock to finance the transaction.

Occidental CEO Vicki Hollub said the company is purchasing CrownRock to increase its scale in the Midland Basin.

“It’s the scale, it’s the inventory, and all of that has helped now for us also to step up our dividend,” Hollub told CNBC’s “Squawk Box” on Monday. Occidental is raising its quarterly dividend to 22 cents a share from 18 cents a share beginning next year.

CrownRock is one of the last major private producers in the Permian alongside Endeavor Resources. The company is led Texas billionaire Timothy Dunn and backed by the Houston-based private equity firm Lime Rock Partners.

Occidental is the ninth-largest energy company in the U.S. with a market capitalization of $49.7 billion. Warren Buffett‘s Berkshire Hathaway owns about a 26% stake in the company. Occidental’s stock has fallen 10% this year. Its shares were down less than 1% in premarket trading Monday.

Hollub said Berkshire Hathaway was not involved in the CrownRock deal, though Occidental did discuss with Buffett how the company fits into its corporate strategy.

Occidental’s last major acquisition was its purchase of Anadarko Petroleum for $55 billion in 2019. The buy of Anadarko loaded the company with debt and sparked a bitter dispute with activist investor Carl Icahn, who sold the remainder of his stake in the company in 2022.

Hollub said Occidental’s goal is to slash its debt below $15 billion even with the $9.1 billion in obligations the company is assuming through the CrownRock acquisition. Occidental plans to do this by divesting some domestic assets that are not core to the company’s portfolio, the CEO said.

“The debt picture over the next two to three years is actually about what it would have been without this acquisition because we use the combination of cash flow and the divestitures to work that down,” Hollub said. “So the metrics are going to be about the same as they would have been.”

Occidental’s purchase of CrownRock is the third major deal in the energy sector in less than two months.

Exxon Mobil announced in October that it is acquiring Pioneer Natural Resources for about $60 billion. Pioneer is one of the largest producers in the Midland Basin, according to Enverus. Weeks later, Chevron announced it had agreed to purchase Hess for $53 billion.

Hollub said Exxon’s acquisition of Pioneer did not influence Occidental’s decision to purchase CrownRock.

When asked about falling oil prices, Hollub said Occidental expects U.S. crude to average $80 a barrel. West Texas Intermediate was trading around $71 on Monday. Hollub attributed dropping crude prices to record U.S. production.

“It would be prudent of U.S. producers to be careful in terms of putting too much supply in the market,” Hollub said.

She said the company is able to breakeven with oil at $40 a barrel: “We have the capability to continue to deliver value to keep our production and even grow our production modestly,” Hollub said.

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