Inside Scoop on Anadarko-Oxy Deal
Every major paper in America (and the world, perhaps) will provide the most current details of Anadarko’s decision to terminate their agreement with Chevron and accept Oxy’s superior proposal. The cornerstone of that flip was put in place by Warren Buffett, who has promised to fund the liquidated damages of $1 Billion owed to Chevron by Anadarko for breaching their deal. But again, anyone can read the major details just about anywhere right now.
I want to talk about the aspects of the change-of-heart that directly affect royalty owners and professionals in the oil and gas industry. The behind-the-scenes scoop, so to speak.
Of interest to industry land professionals is one major aspect not discussed in the numerous articles. Oxy will need to find buyers for the excess federal lease acreage they will suddenly own, not allowed by federal law. The current limit is 200,000 gross acres of federal lease land in any single state, excluding Alaska. [U.S. Code Title 30. Mineral Lands and Mining, Chapter 3A. Leases and Prospecting Permits, Subchapter I. General Provisions, Section 184. Limitations on leases held, owned or controlled by persons, associations or corporations]
This restriction would have been reviewed by Anadarko and Chevron immediately after signing their agreement. Chevron, as one of the largest major oil companies, holds extensive acreage under federal leases pretty much everywhere in the lower 48. Anadarko has valuable federal lands in the northern states such as South Dakota, Wyoming, and Montana. Anadarko and Chevron likely could have reached agreement as to which federal leases Chevron did not want to acquire, and Anadarko then would have agreed to sell off those federal leases before the merger officially took place.
Crestwood indicated earlier this week that they are negotiating with Anadarko to acquire Anadarko’s holdings in the Powder River Basin which were slated for development by Anadarko in 2019. By January 2019, Anadarko had already accepted Chevron’s $33 Billion offer to buy Anadarko. Chevron sold nearly 100,000 net acres of natural gas properties in Green River, Wind River and Powder River basins in Wyoming and Colorado in 2016 and 2017, so it made sense why Chevron wouldn't want to keep Anadarko’s Powder River Basin project after the merger.
But Chevron is out of the picture now. It’s yet to be seen whether Oxy wants to keep that project following the merger. All bets could be off in any potential sales of oil and gas leases by Anadarko undertaken while Chevron was still the winning bid. It’s now up to Oxy to decide what stays and what goes prior to their merger with Anadarko.
Oxy will have the same task ahead to decide which of their own properties need jettison before the merger, and which properties to direct Anadarko to dump. The entire process is literally starting over as of late Monday evening, May 6.
As for royalty owners, it’s unknown what interruptions in regular monthly royalty payments will be felt by which owners in which company. It’s expected that Oxy will continue to distribute production revenues for their existing properties without interruption. But Anadarko royalty owners might not be so lucky. The transfer of data from Anadarko’s colossal land and revenue distribution databases will be a daunting task, one riddled with errors, omissions, and failed record reconstructions. These setbacks occur with every acquisition/divestiture, without exception.
To be sure, this merger will require at least two years from start to finish. We hope no longer. BP America gave up essentially on merging Amoco records into their own land and revenue accounting databases following that merger, opting to run both companies’ database systems side-by-side as late as mid-2009, a full three years after the merger was inked.