- CrownRock's 94,000+ net acres acquisition complements Occidental's Midland Basin operations, valued at $12.0 billion.
- This expansion enhances Occidental's Midland Basin-scale and upgrades its Permian Basin portfolio with ready-to-develop, low-cost assets.
- The deal is set to add around 170 thousand barrels of oil equivalent per day in 2024, with high-margin, sustainable production.
“We believe the acquisition of CrownRock's assets adds to the strongest and most differentiated portfolio that Occidental has ever had. We found CrownRock to be a strategic fit, giving us the opportunity to build scale in the Midland Basin and positioning us to drive value creation for our shareholders with immediate free cash flow accretion.”
- Occidental President and Chief Executive Officer Vicki Hollub
“Occidental's purchase of CrownRock is a multi-win proposition for CrownRock, our employees and customers, and our community.”
- CrownQuest Operating Chief Executive Officer Tim Dunn
The U.S. antitrust agency has initiated a detailed investigation into Occidental Petroleum Corp's proposed $12-billion purchase of CrownRock LP, a Permian-based producer. Occidental will pay for the purchase by borrowing $9.1 billion, taking on CrownRock's existing $1.2 billion debt, and giving $1.7 billion in common stock to CrownRock owners.
Occidental, backed by Warren Buffet, along with CrownRock, recently received a 'second request' from the Federal Trade Commission (FTC) for more information on the deal, as disclosed by Occidental to the U.S. Securities and Exchange Commission (SEC). This request aims to assess if the merger violates antitrust laws.
In its SEC filing, Occidental mentioned its ongoing cooperation with the FTC to review the acquisition, involving CrownRock's owners—CrownQuest Operating LLC and Lime Rock Partners. Occidental expects the transaction's completion in the first quarter of this year.
This cash-and-stock deal, which includes debt, is set to expand Occidental's holdings in the Permian Basin by 94,000 net acres. Located in the Midland sub-basin, these assets are anticipated to contribute an average of 170,000 barrels of oil equivalent per day to Occidental's production in 2024.
History Repeats? Senators Cite Past Mergers' Impact on Oil Industry
The oil industry is closely monitored due to major mergers. Chevron Corp's planned acquisition of Hess Corp and Exxon Mobil Corp's proposed buyout of Pioneer Natural Resources Co. are being investigated for potential anti-competitive practices, as reported in SEC filings.
Chevron's impending $60-billion takeover of Hess will give Chevron control over 465,000 acres in North Dakota's Bakken shale area, as well as Hess' assets in Guyana. This all-stock deal, which includes debt, is valued at $53 billion in shares, as announced in October.
Similarly, the deal between ExxonMobil and Pioneer, announced in the same month, will merge Pioneer's over 850,000 acres in Midland with ExxonMobil's 570,000 acres in the Midland and Delaware basins. ExxonMobil's $64.5-billion acquisition, an all-stock transaction including debt, is expected to double its production to 1.3 million barrels of oil equivalent per day (MMboepd) in 2024, with a target of 2.0 MMboepd by 2027.
The planned buyouts by Chevron and ExxonMobil, two major oil companies in the U.S., have led senators to request a Federal Trade Commission (FTC) investigation. They are concerned that the oil and gas industry is becoming too dominated by a few large companies.
23 Senators in a letter to the FTC, November:
- ”By allowing Exxon and Chevron to further integrate their extensive operations into important oil-and-gas fields, these deals are likely to harm competition, risking increased consumer prices and reduced output throughout the United States.”
- ”At the regional level, the deals threaten to harm small operators and suppress wages.”
- “In the 1990s, over 2,600 mergers occurred throughout all segments of the U.S. petroleum industry.”
The senators pointed out that after the mergers, the merged companies cut back on their drilling investments and oil production, even when prices were high:
- ”Between 1990 and 2001, the number of major U.S. energy companies plunged by more than half, dropping from 19 to 9, due to merger activity. Most notably, Exxon merged with Mobil in 1999; Chevron merged with Texaco in 2001 (after Chevron had already acquired Gulf Oil and Texaco had already bought Getty Oil in the 1980s).”
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”Such consolidation enabled anticompetitive coordination in the industry, and the remaining firms were well aware that they were members of an oligopoly with a 'small number of companies involved, all of whom share a motivation to recoup costs and not undermine the market.” - Quoting a Senate report, May 2002.
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”The Government Accountability Office found that five specific mergers from that time period – Marathon-Ashland, Shell-Texaco I (Equilon), BP-Amoco, MAP-UDS, and Exxon-Mobil – led to wholesale gasoline price increases ranging from 0.39 to 5.00 cents per gallon.” - Cited in the letter, referring to a May 2004 probe.
U.S. Antitrust Laws
Under U.S. antitrust laws, major acquisitions and mergers must be reported to the FTC and the Department of Justice (DOJ). This notification starts a typical 30-day review period, as outlined in the FTC's 2019 guide on the Hart-Scott-Rodino Antitrust Improvements Act.
During this period, if the FTC or DOJ deems further examination necessary, they can request more information under Section 7A(e) of the Clayton Act, amended by the Hart-Scott-Rodino Act. This ”second request” extends the waiting period, usually by another 30 days (or 10 days for cash tender offers or bankruptcy sales), until all necessary information is provided.
If the FTC suspects an antitrust violation, it can seek a court injunction to halt the transaction.
Recently, the FTC announced updates to strengthen the oversight of mergers and acquisitions under the Antitrust Improvements Act. These updates include increasing the minimum transaction size for mandatory reporting from $111.4 million to $119.5 million.
About Occidental
Occidental is a large international energy company, mainly active in the United States, Middle East, and North Africa. It's one of the top oil and gas producers in the U.S., especially in the Permian and DJ basins, and the Gulf of Mexico. The company also has a segment that ensures steady oil and gas flow and enhances its value. Its chemical branch, OxyChem, creates essential components for various products. Another part of the company, Oxy Low Carbon Ventures, focuses on developing technologies and business strategies to increase profits while lowering emissions.
About CrownQuest Operating
CrownQuest Operating, based in Midland, Texas, is a private company overseeing the CrownRock LP partnership since 2007. It has been active in the Permian Basin since 1996. The company also manages other interests, mainly in land and mineral management.
About Lime Rock Partners
Lime Rock Management, founded in 1998, has invested over $10 billion in the energy sector. They operate in three areas: Lime Rock Partners (investing in growth capital for E&P and oilfield services companies), Lime Rock Resources (buying and managing oil and gas properties in the U.S.), and Lime Rock New Energy (investing in new energy companies in North America). With a 25-year history, they have made over 100 investments in portfolio companies, working closely with entrepreneurs to develop unique oil and gas businesses.
