On Monday, Occidental Petroleum unveiled plans to acquire energy producer CrownRock in a significant deal valued at $12 billion, inclusive of existing debt. The acquisition aims to bolster Occidental’s position in the energy sector and enhance its cash flow, marking the company’s first major move since its 2019 acquisition of Anadarko Petroleum, which garnered widespread criticism for its debt implications.

Financing Structure

Occidental detailed the financing structure for the purchase, intending to fund it through a combination of new debt, common equity issuance, and the assumption of CrownRock’s existing debt. The breakdown includes $9.1 billion in new debt, approximately $1.7 billion in common equity, and the absorption of CrownRock’s $1.2 billion debt burden. The deal is slated to conclude in the first quarter of 2024.

Strategic Implications

This cash-and-stock deal positions Occidental to augment its cash flow and gain control of over 94,000 net acres in the Midland Basin, a vital segment of the Permian Basin located in Texas. The move aligns with industry trends where oil and gas producers are urged to expand their portfolios, following notable transactions like Exxon Mobil’s $60 billion deal for Pioneer Natural Resources and Chevron’s $53 billion agreement for Hess in October.

Past Challenges and Current Outlook

Occidental’s acquisition of Anadarko in 2019, while criticized for its debt implications, marked a significant move in the energy sector. With approximately $18.60 billion in debt as of September 30, 2023, Occidental navigated financial challenges, and this new acquisition reflects its ongoing commitment to strategic growth.

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