Chevron Stock Rises on PDC Energy Deal’s Low Pricing

Chevron Stock

Chevron Stock (NYSE:CVX)

After falling by around 2% on Monday, Chevron (NYSE:CVX) is back on track in early trading Tuesday, up 3%. This comes after the company said it will acquire PDC Energy (NASDAQ:PDCE) in an all-stock transaction valued at $6.3 billion, or $72 per share, a figure that has been praised by some analysts as being exceptionally low.

According to Truist analyst Neal Dingmann, the transaction values PDC (PDCE) at 2.9x projected enterprise value to EBITDA over the next four quarters, which is on par with two previous deals done this year but lower than other recent deals on certain other criteria, such as the price for each flowing barrel of oil.

Dingmann said it was unexpected that the sale “was not fully shopped across the industry,” which may have resulted in a greater offer for PDCE.

Analysts like Tim Rezvan from KeyBanc have pointed out that PDC stock had traded higher than the purchase price “at multiple points in 2022… so the pricing does not seem terribly strong to us.”

The analyst also noted that PDC “was not a company in any type of financial or strategic distress,” thanks to the company’s healthy balance sheet and free cash flow.

While other bidders may have been moderately enthusiastic, Rezvan believes PDC shareholders will approve the deal because oil producers in Colorado have historically traded at lower valuations than Texas producers due to the state’s strict permitting requirements.

The fact that only three firms, including Chevron, would control the great bulk of the land in Colorado raises concerns in light of the Federal Trade Commission’s recent tendency to challenge several oil and gas acquisitions on antitrust grounds.

Citi analyst Alastair Syme observed that the acquisition will make Chevron the top producer in Colorado’s DJ Basin by 2024, with a projected output of 140K boe/day.

In light of PDC’s DJ Basin acreage, located mostly close to Chevron’s, CFRA analyst Stewart Glickman raised his recommendation for Chevron stock from Hold to Buy.

According to Gabriele Sorbara, an analyst at Siebert Williams Shank, the sale is “very favorable to Chevron stock as the deal provides a core position in the DJ Basin at a highly attractive valuation.”

Featured Image: Unsplash @ Luis Ramirez

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