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Chevron Acquires Hess in $53 Billion Oil Megadeal Following Exxon's Pioneer Purchase
11/02/2023
- Acquisition Value: $53 billion in an all-stock deal.
- Aim: To expand Chevron's U.S. oil footprint and stake in Exxon Mobil's Guyana discoveries.
- Post-Acquisition Output: Around 3.7 million barrels per day with a 40% increase in shale output to 1.3 million bpd.
- Notable Stake Acquired: 30% in the Exxon and CNOOC Stabroek oil block in Guyana, expected to yield more than 1.2 million bpd by 2027.
Chevron Corp has agreed to acquire Hess Corp in a $53 billion all-stock deal. This acquisition will not only enhance Chevron’s position in the domestic oil market but also fetch a substantial stake in Exxon Mobil's promising Guyana projects.
The Chevron-Hess deal is a part of a broader trend of consolidation in the U.S. oil sector. This merger comes on the heels of a massive $60 billion acquisition by Exxon earlier in the month. Both Chevron and Exxon aim to add many years of oil and gas production to their portfolios, majorly from U.S. shale. The deals have further widened the gap between U.S. and European oil giants, with the latter focusing more on renewable energy ventures of late.
“Building on our track record of successful transactions, the addition of Hess is expected to extend further Chevron’s free cash flow growth,” said Pierre Breber, Chevron’s CFO. “With greater confidence in projected long-term cash generation, Chevron intends to return more cash to shareholders with higher dividend per share growth and higher share repurchases.”
Boosting Production
Post-acquisition, Chevron's total oil and gas output is set to soar to about 3.7 million barrels per day. A significant portion of this increase, about 40%, will come from expanded shale output, taking it to 1.3 million barrels per day. This will place Chevron in a neck-and-neck competition with Exxon's projected shale output following its recent acquisition of Pioneer Natural Resources.
This merger will facilitate Chevron’s entry into less risky oil production regions by adding to its output in the U.S. Gulf of Mexico and initiating its presence in the Bakken shale in North Dakota. Moreover, Chevron will now hold a 30% stake in the Exxon and CNOOC Stabroek oil block in Guyana, with expectations of the output tripling to more than 1.2 million barrels per day by 2027.
“This strategic combination brings together two strong companies to create a premier integrated energy company,” CEO John Hess said. “I am proud of our people and what we have achieved as a company, which has one of the industry’s best growth portfolios including Guyana, the world’s largest oil discovery in the last 10 years, and the Bakken shale, where we are a leading oil and gas producer. Chevron has a world-class diversified portfolio of assets and one of the industry’s strongest balance sheets and cash return profiles. I believe our strategic combination creates a company that is stronger in every respect, with the leadership, asset portfolio and financial resources to lead us through the energy transition and deliver significant shareholder value for years to come.”
Financial Implications
Chevron has offered 1.025 of its shares for each Hess share, translating to about $171 per share, which implies a premium of about 4.9% to Hess's last stock close. Including debt, the total deal value stands at $60 billion. The deal, anticipated to close by the first half of 2024, is expected to generate about $1 billion in cost synergies within a year of its closure. Post-deal, Chevron plans to sell assets between $15 billion to $20 billion and allocate between $19 billion and $21 billion annually on major projects.
Climate Concerns
The acquisition, however, has not been received well by environmentalists, who argue that such consolidations within the fossil fuel industry undermine the climate goals set by the Paris Agreement. They caution that Big Oil needs to transition towards renewable energy to comply with global warming limits.
About Chevron
Chevron is a multinational energy corporation with a rich history stretching over 140 years, marked by human ingenuity and innovation. It has been a player in the development of energy resources across the globe, requiring a blend of talent and technical knowledge. The company has grown through acquisitions and exploration, continuously expanding its operations in the energy sector.
About ExxonMobil
ExxonMobil is at the forefront of meeting the world's universal energy needs by pioneering new research and technologies aimed at reducing emissions while creating more efficient fuels. The company has a global organization committed to responsibly addressing energy requirements, balancing the need for energy and reducing environmental impacts.
About Hess Corporation
Hess Corporation is an exploration and production (E&P) company primarily involved in the exploration, development, production, transportation, purchase, and sale of crude oil, natural gas liquids, and natural gas. With operations located in the United States, Guyana, the Malaysia/Thailand Joint Development Area (JDA), and Malaysia, Hess operates through two segments: E&P and Midstream. The E&P segment focuses on the exploration, development, production, purchase, and sale of crude oil, NGL, and natural gas.
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