Summary of Evercore’s Financial Analysis
Discounted Cash Flow Analysis
Evercore performed a discounted cash flow analysis to calculate ranges of implied present values per share of Anadarko common stock as of April 1, 2019, utilizing estimates of the standalone, unlevered, after-tax free cash flows Anadarko was expected to generate over the period from 2019 through 2025 based on the Management Strip Forecasts.
For purposes of its discounted cash flow analysis, unlevered free cash flow was defined as earnings before interest and taxes, less unlevered taxes, plus depreciation and amortization, plus (less) changes in working capital, less capital expenditures (excluding capitalized interest expense), plus non-cash exploration expense, plus other non-cash items.
Evercore calculated ranges of terminal values for Anadarko (i) using the perpetual growth rate method by applying an assumed perpetuity growth rate range of 1.5% to 2.5% to the estimate of terminal year unlevered free cash flow reflected in the Management Strip Forecasts and (ii) using the earnings before interest, taxes, depreciation, amortization and exploration expense (“EBITDAX”) exit multiple method by applying terminal year enterprise value to last-twelve-month (“LTM”) EBITDAX multiples ranging from 5.5x to 6.5x to estimated 2025 EBITDAX.
Evercore then discounted Anadarko’s projected, unlevered free cash flows over the period from 2019 through 2025 and the ranges of terminal values for Anadarko it calculated using the perpetuity growth rate method and the EBITDAX exit multiple method, in each case, to present value as of April 1, 2019, using discount rates ranging from 9.0% to 10.0%, to derive ranges of implied enterprise values for Anadarko. The discount rates were based on Evercore’s judgment of the estimated range of Anadarko’s weighted average cost of capital. Evercore then deducted from the ranges of implied enterprise values Anadarko management’s estimate of Anadarko’s net debt (calculated as total debt less available cash and cash equivalents of Anadarko and Western Midstream Partners, L.P.) as of March 31, 2019 as reflected in Anadarko’s consolidated balance sheet as of that date and adjusted for the payment of the $1 billion termination fee by Anadarko in connection with the termination of its prior merger agreement with Chevron (the “Chevron termination fee”), plus non-controlling interests in Western Midstream Partners, L.P. as of May 7, 2019, calculated using publicly available information and information provided to Evercore by Anadarko management, and divided the results by the fully diluted outstanding shares of Anadarko common stock calculated based on information provided to Evercore by Anadarko management, to derive a range of implied equity values per share of Anadarko common stock as follows:
Method |
Implied Per Share Equity Value Reference Ranges |
||
Perpetuity Growth Rate Method |
$ | 53.80 - $83.72 | |
EBITDAX Exit Multiple Method |
$ | 56.41 - $76.48 | |
Selected Public Company Trading Analysis
Evercore reviewed and compared certain financial information of Anadarko and Occidental to corresponding financial multiples and ratios for the following selected publicly traded companies in the energy industry (referred to in this section as the “selected companies”):
| • | Apache Corporation |
| • | ConocoPhillips |
| • | Devon Energy Corporation |
| • | Hess Corporation |
| • | Marathon Oil Corporation |
| • | Noble Energy, Inc. |
Although none of these companies are directly comparable to Anadarko or Occidental, Evercore selected these companies based on its professional judgment because they are exploration and production companies with business characteristics that for purposes of its analysis Evercore considered similar to the business characteristics of Anadarko and Occidental.
For Anadarko, Occidental and each of the selected companies identified above, Evercore calculated (i) enterprise value (defined as equity market capitalization plus total debt (for Anadarko, including Western Midstream Partners, L.P.’s total debt), less available cash and cash equivalents (for Anadarko, including Western Midstream Partners, L.P.’s cash and cash equivalents), plus non-controlling interests) as a multiple of estimated EBITDAX for calendar years 2019 and 2020, and (ii) the closing share prices as of May 7, 2019 as a multiple of estimated cash flow per share (“CFPS”). The financial multiples and ratios for Occidental and the selected companies were based on closing share prices as of May 7, 2019, financial data as reflected in the most recent public filings made by such company and consensus estimates for 2019 and 2020 obtained from publicly available equity research analysts’ projections made available by FactSet as of May 7, 2019.
The results of these calculations were as follows:
Company |
Enterprise Value / EBITDAX |
Price / CFPS |
Net Debt / EBITDAX |
||||||||||||
2019E |
2020E |
2019E |
2020E |
2018A |
|||||||||||
Selected Companies |
|||||||||||||||
Apache Corporation |
4.9x | 4.4x | 3.5x | 3.1x | 1.7x | ||||||||||
ConocoPhillips |
4.8x | 4.7x | 5.7x | 5.6x | 0.5x | ||||||||||
Devon Energy Corporation |
5.2x | 4.9x | 4.5x | 4.0x | 1.4x | ||||||||||
Hess Corporation |
8.8x | 6.9x | 8.5x | 6.2x | 1.7x | ||||||||||
Marathon Oil Corporation |
4.5x | 4.1x | 4.0x | 3.6x | 1.2x | ||||||||||
Noble Energy, Inc. |
6.6x | 4.9x | 5.0x | 3.6x | 2.6x | ||||||||||
Median |
5.1x | 4.8x | 4.8x | 3.8x | 1.6x | ||||||||||
Mean |
5.8x | 5.0x | 5.2x | 4.3x | 1.5x | ||||||||||
Anadarko Petroleum Corporation |
7.6x | 6.7x | 6.0x | 5.3x | 2.1x | ||||||||||
Occidental Petroleum Corporation |
6.0x | 5.9x | 6.3x | 5.9x | 1.0x | ||||||||||
Based on the multiples it derived for the selected companies and its professional judgment and experience, Evercore applied (i) an enterprise value to EBITDAX multiple reference range of 5.0x to 6.0x to Anadarko management’s estimate of consolidated 2019 EBITDAX for Anadarko under the Management Consensus Forecasts, and (ii) an enterprise value to EBITDAX multiple reference range of 4.5x to 5.5x to Anadarko management’s estimate of consolidated 2020 EBITDAX for Anadarko under the Management Consensus Forecasts, in each case, to derive ranges of implied enterprise values for Anadarko. Evercore then deducted from the ranges of implied enterprise values Anadarko management’s estimate of Anadarko’s net debt (calculated as total debt less available cash and cash equivalents of Anadarko and Western Midstream Partners, L.P.) as of March 31, 2019 as reflected in Anadarko’s consolidated balance sheet as of that date and adjusted for the payment of the Chevron termination fee, plus non-controlling interests in Western Midstream Partners, L.P. as of
May 7, 2019, calculated using publicly available information and information provided to Evercore by Anadarko management, and divided the results by the fully diluted outstanding shares of Anadarko common stock calculated based on information provided to Evercore by Anadarko management, to derive a range of implied equity values per share of Anadarko common stock.
Based on the multiples it derived for the selected companies and its professional judgment and experience, Evercore also applied (i) a price to CFPS multiple reference range of 3.75x to 5.25x to Anadarko management’s estimate of 2019 CFPS for Anadarko under the Management Consensus Forecasts, and (ii) a price to CFPS multiple reference range of 3.25x to 4.25x to Anadarko management’s estimate of 2020 CFPS for Anadarko under the Management Consensus Forecasts to derive a range of implied equity values per share of Anadarko common stock.
The results of these calculations were as follows:
Metric |
Implied Equity Value Range Per Share |
||
Enterprise Value / EBITDAX |
$ | 39.19 - $61.45 | |
Price / CFPS |
$ | 47.77 - $67.96 | |
Precedent Transaction Analysis
Evercore reviewed publicly available information related to selected precedent acquisition transactions involving publicly traded companies in the energy industry announced since 1998 with a total enterprise value greater than $5 billion. For each selected precedent transaction, Evercore calculated (i) the implied equity value (based on transaction consideration) as a multiple of cash flow for the target company for each of the first fiscal year and the second fiscal year after the announcement of the applicable transaction based on mean consensus estimates for 2019 and 2020 obtained from publicly available equity research analysts’ projections, and (ii) the implied enterprise value (based on transaction consideration) as a multiple of EBITDAX for the target company for each of the first fiscal year and the second fiscal year after the announcement of the applicable transaction based on mean consensus estimates for 2019 and 2020 obtained from publicly available equity research analysts’ projections. The selected precedent transactions reviewed by Evercore and the implied equity value to cash flow multiples and implied enterprise value to EBITDAX multiples calculated by Evercore with respect to those target companies were:
Equity Value / Cash Flow multiples |
Enterprise Value / EBITDAX multiples |
|||||||||||||
Date Announced |
Buyer |
Seller |
Fiscal Year 1 |
Fiscal Year 2 |
Fiscal Year 1 |
Fiscal Year 2 |
||||||||
11-01-18 |
Encana Oil & Gas (USA) Inc. |
Newfield Exploration Company |
3.8x | 3.1x | 5.0x | 4.1x | ||||||||
08-14-18 |
Diamondback Energy, Inc. |
Energen Corporation |
8.3x | 6.1x | 8.9x | 6.8x | ||||||||
03-28-18 |
Concho Resources Inc. |
RSP Permian, Inc. |
9.4x | 6.8x | 10.0x | 7.8x | ||||||||
06-19-17 |
EQT Corporation |
Rice Energy Inc. |
7.0x | 5.5x | 7.9x | 6.3x | ||||||||
04-08-15 |
Royal Dutch Shell plc |
BG Group plc |
12.7x | 9.9x | 13.0x | 8.9x | ||||||||
12-15-14 |
Repsol Oil & Gas Canada Inc. |
Talisman Energy, Inc. |
4.0x | 4.6x | 4.7x | 5.7x | ||||||||
09-29-14 |
Encana Corporation |
Athlon Energy Inc. |
15.9x | 8.6x | 15.6x | 9.0x | ||||||||
12-05-12 |
Freeport-McMoRan Copper & Gold Inc. |
Plains Exploration & Production Company |
4.6x | 2.5x | 6.7x | 3.6x | ||||||||
07-23-12 |
CNOOC Limited |
Nexen Inc. |
6.0x | 5.3x | 4.3x | 3.9x | ||||||||
07-14-11 |
BHP Billiton Group |
Petrohawk Energy Corporation |
10.2x | 7.2x | 10.5x | 7.6x | ||||||||
12-14-09 |
ExxonMobil Corporation |
XTO Energy Inc. |
5.0x | 5.7x | 6.0x | 6.7x | ||||||||
06-24-09 |
Sinopec Group Company |
Addax Petroleum Corporation |
6.5x | 4.8x | 5.5x | 4.0x | ||||||||
03-23-09 |
Suncor Energy Inc. |
Petro-Canada |
5.1x | 4.1x | 4.2x | 3.4x | ||||||||
Equity Value / Cash Flow multiples |
Enterprise Value / EBITDAX multiples |
|||||||||||||
Date Announced |
Buyer |
Seller |
Fiscal Year 1 |
Fiscal Year 2 |
Fiscal Year 1 |
Fiscal Year 2 |
||||||||
10-31-07 |
Penn West Energy Trust |
Canetic Resources Trust |
5.1x | 5.5x | 6.7x | 5.2x | ||||||||
06-23-06 |
Anadarko Petroleum Corporation |
Western Gas Resources, Inc. |
10.6x | 9.7x | 10.2x | 8.7x | ||||||||
06-23-06 |
Anadarko Petroleum Corporation |
Kerr-McGee Corporation |
6.6x | 5.4x | 7.1x | 5.7x | ||||||||
12-12-05 |
ConocoPhilips |
Burlington Resources Inc. |
7.6x | 6.3x | 6.4x | 5.2x | ||||||||
04-04-05 |
Chevron Corporation |
Unocal Corporation |
5.9x | 6.0x | 5.2x | 5.1x | ||||||||
04-02-02 |
Shell Resources plc |
Enterprise Oil plc |
5.5x | 5.2x | 5.2x | 4.9x | ||||||||
01-27-02 |
PanCanadian Energy Corporation (nka Encana) |
Alberta Energy Company Ltd. |
4.9x | 5.7x | 4.6x | 5.2x | ||||||||
11-18-01 |
Phillips Petroleum Co. |
Conoco Inc. |
4.1x | 4.5x | 4.1x | NA | ||||||||
05-29-01 |
Conoco Inc. |
Gulf Canada Resources Ltd. |
4.1x | 4.7x | 4.7x | 5.6x | ||||||||
10-16-00 |
Chevron Corporation |
Texaco Inc. |
NA | NA | NA | NA | ||||||||
04-03-00 |
Anadarko Petroleum Corporation |
Union Pacific Resources Group Inc. |
3.9x | 4.1x | 4.9x | 5.3x | ||||||||
04-01-99 |
BP Amoco Company |
Atlantic Richfield Company |
9.0x | 9.2x | NA | NA | ||||||||
12-01-98 |
Exxon Corporation |
Mobil Corporation |
6.1x | 6.0x | NA | NA | ||||||||
08-11-98 |
British Petroleum Company p.l.c. |
Amoco Corporation |
10.6x | 9.5x | NA | NA | ||||||||
Median |
6.1x | 5.6x | 6.0x | 5.5x | ||||||||||
Mean |
7.0x | 6.0x | 7.0x | 5.9x | ||||||||||
Median (excluding high growth shale transaction) |
5.7x | 5.5x | 5.2x | 5.2x | ||||||||||
Mean (excluding high growth shale transaction) |
6.3x | 5.8x | 6.1x | 5.4x | ||||||||||
Although none of the target companies above is directly comparable to Anadarko and none of the precedent transactions is directly comparable to the merger, Evercore selected these transactions based on its professional judgment because they involve target companies that are exploration and production companies with business characteristics that for purposes of its analysis Evercore considered similar to the business characteristics of Anadarko.
Based on the multiples it derived from the selected precedent transactions and based on its professional judgment and experience, Evercore (i) selected a reference range of enterprise value to EBITDAX multiples of 5.0x to 7.0x and applied this range of multiples to Anadarko’s estimated consolidated EBITDAX for 2019, as provided to Evercore by the management of Anadarko under the Management Consensus Forecasts, and (ii) selected a reference range of enterprise value to EBITDAX multiples of 4.0x to 6.0x and applied this range of multiples to Anadarko’s estimated consolidated EBITDAX for 2020, as provided to Evercore by the management of Anadarko under the Management Consensus Forecasts, in each case to calculate an implied enterprise value for Anadarko. Evercore then deducted from the ranges of implied enterprise values Anadarko management’s estimate of Anadarko’s net debt (calculated as total debt less available cash and cash equivalents of Anadarko and Western Midstream Partners, L.P.) as of March 31, 2019 as reflected in Anadarko’s consolidated balance sheet as of that date and adjusted for payment of the Chevron termination fee, plus non-controlling interests in Western Midstream Partners, L.P. as of as of May 7, 2019, calculated using publicly available information and information provided to Evercore by Anadarko management, and divided the results by the fully diluted outstanding shares of Anadarko common stock calculated based on information provided to Evercore by Anadarko management, to derive a range of implied equity values per share of Anadarko common stock.
Based on the multiples it derived from the selected precedent transactions and based on its professional judgment and experience, Evercore also (i) selected a reference range of equity value to CFPS multiples of 4.0x to 6.0x and applied this range of multiples to Anadarko’s estimated CFPS for 2019, as provided to Evercore by the management of Anadarko under the Management Consensus Forecasts, and (ii) selected a reference range of equity value to CFPS multiples of 3.5x to 5.5x and applied this range of multiples to Anadarko’s estimated CFPS for 2020, as provided to Evercore by the management of Anadarko under the Management Consensus Forecasts, to derive a range of implied equity values per share of Anadarko common stock.
The results of the calculations were as follows:
Metric |
Implied Equity Value Range Per Share |
||
Enterprise Value / EBITDAX |
$ | 32.33 - $72.99 | |
Equity Value / CFPS |
$ | 50.95 - $87.94 | |
Other Financial Analysis
The analysis and data described below were presented to the Anadarko Board for informational and reference purposes only and did not provide the basis for, and were not otherwise material to, the rendering of Evercore’s fairness opinion.
Premia Paid Analysis
Evercore reviewed and analyzed premia paid in transactions above $10 billion involving publicly traded U.S.-based companies announced since January 2010 (excluding transactions with target companies in banking, financial institutions, insurance and real estate investment trust industries). Based on its professional judgment and experience and the premia reviewed in the selected transactions, Evercore applied reference ranges of premia of 25% to 35% to the closing price of shares of Anadarko common stock as of April 11, 2019, the last trading day prior to announcement of the previously proposed acquisition of Anadarko by Chevron. This analysis implied a per share equity value reference range of approximately $58.50 to $63.18 for Anadarko.
Analysts’ Price Targets
Evercore reviewed selected publicly available share price targets of research analysts’ estimates known to Evercore as of May 7, 2019, noting that the low and high share price targets ranged from $60.00 to $79.00 for Anadarko common stock.
52-Week Trading Range Analysis
Evercore reviewed historical trading prices of Anadarko common stock during the 52-week period ended April 11, 2019, the date prior to announcement of the previously proposed acquisition of Anadarko by Chevron, noting that low and high closing prices during such period ranged from $40.57 to $75.47 per share of Anadarko common stock.
Selected Public Company Trading Analysis
Based on the multiples it derived for Occidental and the selected companies under the selected public company trading analysis described above and its professional judgment and experience, Evercore applied (i) an enterprise value to EBITDAX multiple reference range of 5.0x to 6.0x to publicly available equity research analysts’ estimate of consolidated 2019 EBITDAX for Anadarko, (ii) an enterprise value to EBITDAX multiple reference range of 4.5x to 5.5x to publicly available equity research analysts’ estimate of consolidated 2020 EBITDAX for Anadarko, (iii) a price to CFPS multiple reference range of 3.75x to 5.25x to publicly available equity research analysts’ estimate of 2019 CFPS for Anadarko, and (iv) a price to CFPS multiple reference range of 3.25x to 4.25x to publicly available equity research analysts’ estimate of 2020 CFPS for Anadarko, to derive ranges of implied equity values per share of Anadarko common stock.
The results of these calculations were as follows:
Metric |
Implied Equity Value Range Per Share |
||
Enterprise Value / EBITDAX |
$ | 33.34 - $51.83 | |
Price / CFPS |
$ | 46.38 - $66.53 | |
Miscellaneous
The foregoing summary of certain material financial analyses does not purport to be a complete description of the analyses or data presented by Evercore. In connection with the evaluation of the merger by the Anadarko Board, Evercore performed a variety of financial and comparative analyses for purposes of rendering its opinion. The preparation of a fairness opinion is a complex process and is not necessarily susceptible to partial analysis or summary description. Selecting portions of the analyses or of the summary described above, without considering the analyses as a whole, could create an incomplete view of the processes underlying Evercore’s opinion. In arriving at its fairness determination, Evercore considered the results of all the analyses and did not draw, in isolation, conclusions from or with regard to any one analysis or factor considered by it for purposes of its opinion. Rather, Evercore made its determination as to fairness on the basis of its experience and professional judgment after considering the results of all the analyses. In addition, Evercore may have given various analyses and factors more or less weight than other analyses and factors, and may have deemed various assumptions more or less probable than other assumptions. As a result, the ranges of valuations resulting from any particular analysis or combination of analyses described above should not be taken to be the view of Evercore with respect to the actual value of the shares of Anadarko common stock. Further, Evercore’s analyses involve complex considerations and judgments concerning financial and operating characteristics and other factors that could affect the acquisition, public trading or other values of the companies used, including judgments and assumptions with regard to industry performance, general business, economic, market and financial conditions and other matters, many of which are beyond the control of Anadarko or its advisors.
Evercore prepared these analyses for the purpose of providing an opinion to the Anadarko Board as to the fairness, from a financial point of view, of the merger consideration to the holders of Anadarko common stock entitled to receive such merger consideration. These analyses do not purport to be appraisals or to necessarily reflect the prices at which the business or securities actually may be sold. Any estimates contained in these analyses are not necessarily indicative of actual future results, which may be significantly more or less favorable than those suggested by such estimates. Accordingly, estimates used in, and the results derived from, Evercore’s analyses are inherently subject to substantial uncertainty, and Evercore assumes no responsibility if future results are materially different from those forecasted in such estimates.
The issuance of the fairness opinion was approved by a Fairness Opinion Committee of Evercore.
Pursuant to the terms of Evercore’s engagement letter with Anadarko, Evercore is entitled to receive a fee estimated, based on the information available as of the date of announcement, at approximately $53 million if the merger is completed, against which a fee of $2.5 million that was payable upon delivery of Evercore’s fairness opinion is fully creditable. Anadarko has also agreed to reimburse Evercore for its reasonable and documented out-of-pocket expenses (including reasonable outside legal fees, expenses and disbursements) and to indemnify Evercore for certain liabilities arising out of its engagement.
During the two-year period prior to the date of its written opinion, Evercore provided financial advisory services to Anadarko and its affiliates, for which Evercore received fees of less than $1 million. During the two-year period prior to the date of its written opinion, neither Evercore nor its affiliates have provided financial services to Occidental and its affiliates for which Evercore received fees, including the reimbursement of expenses. During the two-year period prior to the date of its written opinion, neither Evercore nor its affiliates have provided financial services to Berkshire Hathaway for which Evercore received fees, including the reimbursement of expenses. In the future, Evercore may provide financial or other services to Anadarko, Occidental and Berkshire Hathaway and their respective affiliates and in connection with any such services Evercore may receive compensation.
In the ordinary course of business, Evercore or its affiliates may actively trade the securities, or related derivative securities, or financial instruments of Anadarko, Occidental and their respective affiliates, for its own account and for the accounts of its customers and, accordingly, may at any time hold a long or short position in such securities or instruments.
Anadarko engaged Evercore to act as a financial advisor based on Evercore’s qualifications, experience and reputation. Evercore is an internationally recognized investment banking firm and is regularly engaged in the valuation of businesses in connection with mergers and acquisitions, leveraged buyouts, competitive biddings, private placements and valuations for corporate and other purposes.
