ARKANSAS, Oct 24 (Future Headlines)- Chevron has recently announced a massive acquisition, agreeing to purchase Hess for $53 billion in stock. This strategic move is set to boost Chevron’s presence in the US oil sector and provide access to Exxon Mobil’s substantial Guyana discoveries. The Chevron-Hess deal is part of a series of major mergers among US oil companies, including Exxon’s recent $60 billion acquisition. These deals will significantly enhance both companies’ oil and gas production portfolios, particularly from US shale reserves, making it more challenging for European oil competitors that have shifted their focus to renewable energy.
Michael Wirth, Chevron’s CEO, emphasized the significance of this acquisition for national energy security, underlining that it brings together two major American energy companies. Chevron’s previous acquisitions of PDC Energy and Noble Energy have already strengthened its presence in the shale oil and gas sector.
The combined entity of Chevron, Hess, PDC, and Noble is projected to yield approximately 3.7 million barrels of oil and gas daily, with a 40% increase in shale production, reaching 1.3 million barrels per day. This expansion will help Chevron compete closely with Exxon, especially concerning its shale output following the Pioneer Natural Resources acquisition.
Furthermore, the deal grants Chevron a 30% stake in the Exxon and CNOOC Stabroek oil block in Guyana, a significant asset set to grow to over 1.2 million barrels per day by 2027. Guyana has become one of the world’s fastest-growing oil provinces, with over 11 billion barrels of oil and gas discoveries since 2015.
John Hess, CEO of Hess, has been in talks with Michael Wirth for around two years regarding this deal. The companies have known each other for years and have even been partners in US Gulf of Mexico fields. Both CEOs see this merger as a strategic fit for their companies.
Goldman Sachs acted as the lead adviser to Hess, while Morgan Stanley led the advisory for Chevron. Following the deal announcement, Chevron’s stock fell 3.3% to $161.25, and Hess’s shares dropped about 1% to $161.33. Both companies’ shares closely track crude oil prices, which saw a decline on the day of the announcement.
Chevron offered 1.025 of its shares for each Hess share, totaling about $171 per share. This offer represents a premium of approximately 4.9% to Hess’s last stock price, bringing the total deal value to $60 billion, including debt.
While this deal faces regulatory reviews, Wirth stated that he does not anticipate any antitrust concerns. The combined Chevron-Hess entity expects to generate about $1 billion in cost synergies within a year of closing the deal.
Chevron also plans to sell assets worth between $15 billion and $20 billion and allocate $19 billion to $21 billion annually to major projects after the deal’s closure. Following the deal’s expected completion in the first half of 2024, Hess’s CEO will join Chevron’s board of directors.
Wirth pointed out the high number of CEOs relative to barrels of oil equivalent (BOE) in the industry and emphasized that consolidation is a natural step. He anticipates that other oil deals are likely to follow.
This wave of consolidation, driven by US oil and gas companies, represents a financial show of strength, contrasting with European rivals that have transitioned toward renewable energy sources. Chevron and Exxon have both enjoyed substantial profits thanks to strong energy prices and demand, especially since Russia’s invasion of Ukraine.
Chevron intends to increase share repurchases to the upper end of its annual range of $20 billion if oil prices remain high and will boost its annual shareholder dividend by 8%. Following the acquisition, Chevron will expand buybacks by $2.5 billion.
While these mergers promise greater financial stability and profits for shareholders, they have drawn criticism from environmentalists who view them as counterproductive to climate goals. Some environmental groups argue that these deals undermine the Paris Climate Agreement and the global effort to limit climate change.
Reporting by Moe Khaled; Editing by Sarah White