In a significant move within the U.S. oil and gas industry, Chevron has revealed its plans to acquire Hess Corporation in a massive $53 billion all-stock deal, marking the second major merger among the country’s leading oil players. This announcement comes shortly after Exxon Mobil’s $60 billion deal to purchase Pioneer Natural Resources.
This proposed acquisition intensifies the competition between Chevron, the second-largest oil and gas producer in the United States, and Exxon, its biggest rival. Interestingly, the deal will also make Chevron an unconventional partner with Exxon in Guyana. Previously, Hess, in collaboration with China’s CNOOC, had been actively involved in developing drilling projects in the nascent Latin American producer, Reuters news report said.
The decision to pursue this deal underscores Chevron’s strategy to bolster investments in fossil fuels, primarily due to the persistent strength in oil demand. Many major energy producers are resorting to acquisitions to replenish their inventory after years of underinvestment.
Under the terms of the agreement, Chevron will offer 1.025 of its shares for each share of Hess held, equating to approximately $171 per share. This represents a premium of about 4.9 percent over the stock’s last closing price. The overall deal’s estimated value is $60 billion, inclusive of debt, Chevron said in a news statement.
Transaction Benefits
Strategic fit:
# Guyana – 30 percent ownership in more than 11 billion barrels of oil equivalent discovered recoverable resource with high cash margins per barrel, strong production growth outlook and potential exploration upside.
# Bakken – 465,000 net acres of inventory supported by the integrated assets of Hess Midstream.
# Complementary Gulf of Mexico assets and steady free cash flow from Southeast Asia natural gas business.
# Accretive to cash flow per share and extends growth into 2030s:
# Expected to be accretive to cash flow per share in 2025 after achieving synergies and start-up of the fourth floating production storage and offloading (FPSO) vessel in Guyana.
# Increases Chevron’s estimated five-year production and free cash flow growth rates and expected to extend such growth into the next decade.
Capital and cost efficient:
# The combined company’s capital expenditures budget is expected to be between $19 and $22 billion.
#Â Chevron expects to increase asset sales and generate $10 to $15 billion in before-tax proceeds through 2028.
# Transaction is expected to achieve run-rate cost synergies around $1 billion before tax within a year of closing.
Guyana has emerged as a significant oil producer following substantial discoveries in the region. It has become one of Latin America’s most prominent producers, trailing only Brazil and Mexico.
Currently, Exxon, in partnership with Hess and China’s CNOOC, stands as the sole active oil producer in Guyana. Their collective projects are projected to achieve an impressive output of 1.2 million barrels per day by 2027.
Upon the deal’s completion, which is expected in the first half of 2024, John Hess, the CEO of Hess Corporation, is slated to join Chevron’s board of directors. The combined company anticipates substantial growth in production and free cash flow, exceeding Chevron’s existing five-year guidance.
This merger between Chevron and Hess Corporation signifies a major development in the U.S. energy sector, as these industry giants pool their resources and expertise to navigate the evolving landscape of oil and gas production.