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Warren Buffett-backed US oil giant strikes $12bn deal to buy shale driller

Offshore oil
Offshore oil

A US oil giant backed by Warren Buffett has struck a $12bn (£9.5bn) deal to buy a Texas shale driller in the sector’s latest megamerger.

Occidental Petroleum, backed by Mr Buffett’s conglomerate Berkshire Hathaway, has agreed to buy CrownRock in a debt-fuelled deal.

CrownRock is one of the last remaining independent oil producers in the Permian Basin in Texas, which is the largest oil-producing region of the US.

The company was founded by Texan billionaire Tim Dunn and is backed by private equity firm Lime Rock.

The deal will make Occidental the second-largest producer behind ExxonMobil in the Permian Basin.

The takeover is the latest blockbuster oil merger in the US this year and will fuel M&A speculation around UK rivals BP and Shell.

The two largest deals have been ExxonMobil’s $60bn deal for Pioneer Natural Resources and Chevron’s $53bn acquisition of Hess.

News of the takeovers forced BP chief Murray Auchincloss to downplay speculation that his company could be a target.

Shell, which is twice the size of BP, has also dismissed takeover talk, as chief Wael Sawan said M&A was not his priority.

ExxonMobil and Chevron made their acquisitions using their own shares, which are trading at all-time highs, while share prices in Europe are much lower.

This would mean buyers in the UK would have to use cash or debt to pursue M&A.

Occidental has been forced to rely on debt to buy CrownRock. Around $9bn of the $12bn payment will come from new borrowing and $1.7bn from an issue of new shares. It will also take on CrownRock’s existing $1.2bn debt.

The deal is initially being funded by a $10bn bridging loan from Bank of America but Occidental is planning to pay off some of the debt incurred through asset sales next year, while organising long-term loans and issuing bonds.

It told investors on Monday that it would cut debt by more than $4.5bn within a year.

Occidental will also take over CrownRock’s $1.2bn of existing debt.

Vicki Hollub, Occidental’s chief executive, said: “We believe the acquisition of CrownRock’s assets adds to the strongest and most differentiated portfolio that Occidental has ever had.”

Oil companies like Occidental have been buoyed by rising oil prices in the past 18 months, which have been driven by Russia’s invasion of Ukraine.

Occidental previously acquired Anadarko in a $38bn takeover four years ago, although it later struggled under the weight of its debt pile.

The downturn prompted activist investor Carl Icahn to seek changes but Occidental saw off scrutiny after a revival in oil prices.