Atlas Energy Merges with Chevron - Analyst Blog

U.S.energy behemoth Chevron Corp. (CVX) has closed its previously announced acquisition of natural gas producer Atlas Energy Inc for about $4.3 billion in stock, cash and debt. The transaction, which was declared in November, was completed following Atlas Energy shareholders' vote of approval.

As per the deal, Atlas shareholders got $38.25 in cash and units of Atlas Energy L.P. (AHD) – 64% owned by Atlas Energy – for each share they held, representing a total value of $3.2 billion. Additionally, Chevron assumed $1.1 billion in debt.

Pittsburgh-based Atlas Energy is one of the leading independent natural gas producers in the Appalachian and Michigan Basins. The company has amassed a large acreage position (486,000 net acres) in the prolific Marcellus Shale play, a key natural gas drilling area located throughout Western Pennsylvania and much of the Appalachian Basin.

Overall, Atlas Energy controls some 850 billion cubic feet of proven natural gas reserves, with approximately 80 million cubic feet of daily natural gas output. 

We see the Atlas Energy transaction, which also provides Chevron with a 60% operated interest in a joint venture with India's Reliance Industries, as part of Chevron's long-term strategic plan to focus on growth in its gas business.

In line with other supermajors, Chevron sees natural gas playing an important part in its future. The company's targeted volume growth (1% through 2014 and by 4-5% in the three years after that) will be achieved primarily by new natural gas projects. Chevron expects natural gas to represent 41% of total volumes by 2017, up from the current share of 31%.

San Ramon, California-based Chevron is the second-largest U.S. oil company by market value after ExxonMobil Corp. (XOM). It is engaged in oil and gas exploration and production, refining and marketing of petroleum products, manufacturing of chemicals and other energy-related businesses.

Chevron shares currently retain a Zacks #3 Rank, which translates into a short-term Hold rating. We are also maintaining our long-term Neutral recommendation on the stock.