Why Chevron Might Want to Buy Chesapeake Energy

• Joe Wertz
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  Joe Wertz was a reporter and managing editor for StateImpact Oklahoma from 2011-2019. He reported on energy and environment issues for national NPR audiences and other national outlets. He previously worked as a managing editor, assistant editor and staff reporter at several major Oklahoma newspapers and studied journalism at the University of Central Oklahoma.

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California energy giant Chevron is sitting atop a $21 billion cash pile, and as The Wall Street Journal reports, investors are wondering what’s behind the hoarding.

It could be one of two things, Daniel Gilbert writes. Perhaps Chevron is “bracing for a spike in costs,” but maybe they’ll use the savings to snatch up a smaller rival — like Oklahoma City’s Chesapeake Energy.

Cash-strapped Chesapeake Energy Corp., the nation’s second-largest gas producer after Exxon, has been discussed as an acquisition target since its largest shareholders—who now effectively control the board—urged its management in May to consider a sale at a rich enough premium.

And Chesapeake is, well, cheap. And many say the Oklahoma City company’s $12.7 billion market-value is a steal considering its extensive oil and natural gas land holdings.

But some experts say its complicated web of financings—and the discount on its stock price, which could hinder agreement on a deal value—make an acquisition less likely, the WSJ reports.

Other analysts say Chevron is more likely to spend less to acquire a much smaller gas company, “similar to its $3.2 billion purchase of Atlas Energy in 2010.”

Deutsche Bank recently noted that Hess Corp., HES -0.40% with a market capitalization of $17 billion, could be an attractive target for Chevron because of its operations in areas like North Dakota’s Bakken fields.

Neither Chesapeake nor Hess would comment, the WSJ reports.