Summary
- Chevron sells its Appalachian assets for $735 million.
- The company entered the basin through the $4.3 billion acquisition of Atlas Energy in 2010.
- Shell suffered similar losses in a recent sale.
Chevron (CVX) has agreed to sell its Appalachian basin assets to EQT Corp. (EQT) for $735 million. These are the same assets it purchased from Atlas Energy in 2010 for $4.3 billion of cash and assumed debt. This is the latest multi-billion dollar loss by an oil major via a Marcellus asset round-trip, following Shell's (RDS.A) divestiture to National Fuel Gas Company (NFG) in May.
There are a number ways to approach these transactions. One is that they are smart buys by the more focused basin-specific buyers of the assets from the oil majors. This acquisition from Chevron was a great deal for EQT, and the buy from Shell was great for NFG. The deals were accretive to their shareholders on production, reserves and cash flow. And they added development inventory which is economic at current natural gas "strip" pricing.
Another perspective is that they help focus the oil majors, reducing small assets in basins that have been money losers for some time. Shell is in the midst of a "shift to green," and reducing "dirty" fracking exposure helps with that, despite the environmental advantages of natural gas as a fuel and chemicals source. And Chevron recently bought Noble Energy in a highly accretive deal, so divesting its Marcellus exposure perhaps allows for more focus and reduced overhead.
But importantly, the timing and valuation of these divestitures raises bigger questions about the super-major business model. I correctly identified issues with this model earlier this year. Ironically, one of the issues was insufficient natural gas exposure, which has been one of the winners from the COVID-19 policy fiasco.
What is the point of having a strong balance sheet, low cost of capital, and ostensibly long-term orientation if you buy assets for billions of dollars into a cyclical downturn and sell them ten years later for hundreds of millions of dollars into a cyclical recovery? Here is a 10-year chart of the United States 12 Month Natural Gas Fund (UNL), a natural gas ETF that captures the 12-month forward curve, a better approximation for natural gas prices than spot month-focused United States Natural Gas ETF (UNG):
