What's going on?

On Friday, US oil major Chevron announced an agreement to acquire rival Anadarko Petroleum for a total of $50 billion, catapulting it into third place among the world�s oil producers.

What does this mean?

Chevron will add Anadarko�s oil assets in America�s busy Permian Basin to its own there. Extracting the region�s shale oil is an expensive business, but teaming up should help Chevron lower costs and boost profit as oil�s price marches higher � towards $80 per barrel of crude this year, according to some estimates.


Chevron will also get its hands on Anadarko�s operations in Mozambique � in particular, exporting liquefied natural gas (LNG), which is rising in popularity. As the world shifts toward more environmentally friendly energy sources like wind and hydro, natural gas is seen as a good transitional energy source � it�s less damaging than coal (tweet this).

Why should I care?

For markets: Chevron knows that not all marriages are perfect.

Anadarko�s stock rose 32% on Friday, thanks to the premium price Chevron offered to convince current Anadarko shareholders to part with their stock. Typically, the company doing the buying crows about the duplicate costs it�ll be able to cut, producing a sleeker combined company that can generate higher future profits. And Chevron did � but it also said it�ll soon sell $15-20 billion worth of older assets. In doing so, Chevron effectively acknowledged its imperfect combination with Anadarko but is standing ready to ditch parts of the business that might drag down its earnings.

The bigger picture: Certain approvals are required.

Toshiba�s plans to sell its US LNG business to a Chinese buyer fell through late last week because US regulators failed to approve ownership by a Chinese firm � and the Japanese conglomerate�s shares fell 3% on Friday. Unless Toshiba can find another willing buyer � although it was actually going to pay its Chinese suitor $800 million to take the segment over � its turnaround plan may be on hold indefinitely.