Chevron Corp. is buying PDC Energy in a $7.6 billion deal that will make it by far and away the largest oil and gas producer in Colorado and continues a trend in the state of bigger companies gobbling up smaller ones.
PDC Energy shareholders will get stock in San Ramon, California-based Chevron, the second-largest U.S. oil company by share value after ExxonMobil. Chevron will also assume more than $1 billion in PDC Energy debt.
For the money Chevron will get 275,000 acres adjacent to the company’s present holdings in the Denver-Julesburg Basin, in Weld County, with estimated reserves of 1 billion barrels of oil equivalent, a measure of oil and gas combined.
Chevron will also get 25,000 acres Denver-based PDC Energy owns in Texas in the Permian Basin, the largest and most productive oil field in the country.
“The deal makes Chevron an even more formidable operator in Colorado,” Andrew Dittmar, a director at Enverus Intelligence Research, said in an analyst’s note.
“The Colorado assets do come with some increased regulatory risk,” Dittmar said, “but the worst case for stopping permitting feared several years back has largely not come to pass. Companies have successfully been able to secure years of drilling permits.”
For years Kerr-McGee Oil & Gas Onshore, a subsidiary of Houston-based Occidental Petroleum Corp., was the No. 1 oil and gas producer in Colorado.
It was followed by Noble Energy, a Chevron subsidiary. PDC Energy has been in third or fourth place among producers.
In 2022, Kerr-McGee pumped 27 million barrels of oil. Noble and PDC Energy’s combined output was more than 52 million barrels, according to data from the Colorado Oil and Gas Conservation Commission, which starting July 1 will be known as the Energy and Carbon Management Commission.
The PDC Energy purchase will boost Chevron’s cash flow by $1 billion and create $400 million in efficiencies, Chevron CEO Mike Wirth told analysts Monday on a call presenting the deal.
“This seems like a testament to the idea that the DJ can be a core U.S. position even for a company as large as CVX,” Brad Handler, a researcher at the Colorado School of Mines’ Payne Institute for Public Policy, said in an email, referring to Chevron by its stock ticker symbol.
The PDC Energy acquisition is part of a wave of Colorado oil and gas sector consolidations over the past five years.
In 2019, Occidental bought Anadarko Petroleum and its Kerr-McGee assets for $55 billion, including debt. A year later Chevron took over Noble Energy in a $13 billion deal.
In 2021, three midsized operators — Extraction Oil and Gas, Bonanza Creek Energy and Crestone — merged to form Civitas Resources. That came after Bonanza Creek had purchased bankrupt Highpoint Resources.
PDC Energy has been in the acquisition hunt itself, buying SCR Energy in 2019 for $1.7 billion and Great Western Petroleum for $543 million in 2022.
Still, PDC Energy’s share price languished, trading below peer companies. On Friday shares traded at $65.12. After the Monday announcement shares jumped to $69.91.
“Some analysts thought that the company was undervalued with valuation dragged down at least in part by the regulatory environment in Colorado,” Handler said.
In 2019, legislation changed the mission of the COGCC from promoting the efficient development of oil and gas resources to protecting public welfare, health, safety and the environment and wildlife in the development of oil and gas operations.
In the following years oil and gas regulators and air quality regulators adopted a spate of regulations for the industry.
Several analysts on the call with Wirth and Bart Brookman, PDC Energy’s CEO, raised questions about the regulatory impacts on oil and gas operations in the state.
“Both companies have demonstrated a respect for the higher expectations expressed by the people of Colorado,” Wirth said.
One of the new rules’ innovations, comprehensive area plans — which block out huge swaths of land for coordinated oil and gas development — has removed some uncertainty, Wirth said.
“We’ve received comprehensive area plan approvals as has PDC having years and years’ worth of approved development plans,” Wirth said.
Bookman said, “We’ve been successful in the process obtaining approximately 1,000 permits in the last nine or 10 months.”
Still, PDC Energy’s concentration of assets in Colorado may have been seen as a risk by some investors. “The markets assign a certain concentration risk,” Wirth said. “Conjecture in the market that may have weighed on that.”
When asked by oil and gas analyst Paul Sankey whether political risks could have “excessively discounted” share price, Bookman said “that is always a consideration for any Colorado operator.”