In a significant move within the oil industry, Chevron has announced its acquisition of Hess Corp for a staggering $53 billion in stock. This transaction marks the second mega-merger in the U.S. oil sector in recent weeks, following Exxon Mobil’s $60 billion bid for Pioneer Natural Resources.
Chevron, the second-largest oil and gas producer in the United States, is now positioned in direct competition with its industry giant counterpart, Exxon. The rivalry between these two major players intensifies as they vie for drilling opportunities in the emerging Guyana oil market.
This strategic acquisition by Chevron underscores the company’s commitment to investing in fossil fuels. With the continued robust demand for oil and the need for major oil producers to replenish their reserves after years of underinvestment, this deal aligns with their long-term plans.
Under the terms of the agreement, Chevron is offering 1.025 of its shares for each share of Hess, valuing each Hess share at $171, representing a premium of approximately 4.9% over the stock’s recent closing price. The total value of the deal, including debt, amounts to $60 billion.
Despite the notable deal, Chevron’s premarket shares have experienced a 3% dip. Analysts from RBC expressed surprise at the timing of this acquisition, as many had anticipated Chevron to wait following Exxon’s Pioneer deal.
Guyana has emerged as a significant oil producer, thanks to substantial discoveries in recent years, solidifying its position as one of Latin America’s foremost oil producers, surpassed only by Brazil and Mexico. Currently, Exxon, along with its partners Hess and China’s CNOOC, are the sole active oil producers in the country. Their projects are set to achieve a remarkable 1.2 million barrels per day in output by 2027.
John Hess, the CEO of Hess Corp, is expected to join Chevron’s board of directors once the deal finalizes, which is projected to take place in the first half of 2024.
The combined entity anticipates accelerated production growth and a longer duration of increased free cash flow compared to Chevron’s current five-year guidance, according to company statements.
In addition to the acquisition, Chevron has revealed its intention to enhance its share repurchase program by $2.5 billion, bringing it to the top of its annual range of $20 billion. This move reflects Chevron’s confidence in future energy prices and its ability to generate cash.
Hess received financial advisory from Goldman Sachs, while Chevron enlisted the services of Morgan Stanley as its lead adviser for this monumental transaction.