The usual post-merger giddiness that abounds after a multibillion-dollar oil deal is noticeably absent in the wake of Chevron Corp.’s $5 billion takeover bid for Noble Energy Inc. With Chevron agreeing to pay just a 7.5% premium over Noble’s July 17 closing price, the all-stock deal isn’t eliciting much speculation that a new spree of acquisitions is in the offing. That means little prospect of relief for investors in hundreds of struggling drillers in places like West Texas and Oklahoma. “There’s really not going to be a big wave of M&A,” said Bloomberg Intelligence analyst Vincent G. Piazza. “It’s going to be a function of survival.”
The shale sector that singlehandedly resurrected withering U.S. oil production during the past decade has been fading from favor among investors since long before the Covid-19 pandemic crushed global economic activity. The industry pumped too much crude too quickly just as worldwide demand weakened, wiping out cash flows and any prospect of near-term returns.
In fact, deal premiums in U.S. shale have been hard to come by for much of the past year. Callon Petroleum Co. angered major investors such as Paulson & Co. last year when it offered to buy Carrizo Oil & Gas Inc. at a 25% premium. Under pressure from holders who threatened to vote against the merger, Callon slashed the premium to 6.7%.
Just weeks after the Callon-Carizzo tie-up was announced, PDC Energy Inc. agreed to buy SRC Energy Inc. at a 3.8% discount to its most-recent closing price. At the time, analysts said the small or non-existent premiums signaled target companies were eager to take what they could get, given the darkening outlook for the sector.