Chevron (CVX.N) has recently announced its acquisition of U.S. rival Hess (HES.N) in a stock deal worth $53 billion, underlining the strong appetite among top U.S. energy companies for oil and gas assets amidst a global shift towards lower-risk fossil fuel supplies and increased returns for shareholders.
This strategic move intensifies the competition between Chevron, the second-largest U.S. oil and gas producer, and its larger counterpart, Exxon.
Moreover, it positions Chevron as a partner with Exxon in Guyana’s thriving oilfields, expected to yield an impressive 1.2 million barrels of oil per day by 2027.
This decision by Chevron follows Exxon’s series of rapid acquisitions since July, including the purchases of top U.S. shale producer Pioneer Natural Resources (PXD.N) and Denbury (DEN.N) for nearly $64 billion combined.
These transactions have elevated Exxon’s status in the U.S. shale industry and established its presence in the emerging carbon storage sector.
In the context of these developments, U.S. oil and gas companies are flexing their financial muscles, having continued to invest in fossil fuels while their European counterparts pivot towards renewable energy sources.
Chevron and Exxon have benefitted from surging profits due to robust energy prices and demand, driven in part by geopolitical events such as Russia’s invasion of Ukraine.
Chevron’s CEO, Michael Wirth, highlighted the consolidation trend in the industry, stating, “We’ve got too many CEOs per BOE (barrels of oil equivalent), so consolidation is natural,” and predicted more deals on the horizon.
Under the terms of the acquisition, Chevron will offer 1.025 of its shares for each Hess share, amounting to approximately $171 per share, representing a premium of about 4.9% over the stock’s last closing price. The total deal, including debt, is valued at $60 billion.
Although Chevron’s shares dipped 2.3% in premarket trading, and Hess experienced a slight decrease, analysts from RBC expressed surprise at the timing of the deal, as they had anticipated Chevron to adopt a more patient approach following Exxon’s major acquisition of Pioneer.
Guyana has emerged as the world’s fastest-growing oil province, with over 11 billion barrels of oil and gas discoveries since 2015. Hess holds a 30% stake in an Exxon-led consortium currently producing 380,000 barrels per day.
While the deal awaits regulatory reviews, Chevron’s CEO, Wirth, expressed confidence that antitrust concerns would not arise.
He emphasized the positive impact on energy security and the synergy of bringing together two prominent American companies.
Once the deal concludes, Hess Corp CEO John Hess will join Chevron’s board of directors. He noted that the government of Guyana and Exxon welcome Chevron’s involvement in the country’s oil fields.
The acquisition offers approximately a 5% premium to Hess’s trading price, and the merged companies anticipate achieving about $1 billion in cost synergies within a year of the deal’s closing, according to Wirth.
This consolidation will expand Chevron’s oil production in less risky regions, including the U.S. Gulf of Mexico and the Bakken shale in North Dakota, while establishing its presence in the rapidly expanding Exxon and CNOOC Stabroek oil block in Guyana.
Following the completion of the acquisition, Chevron plans to increase its share repurchase program by $2.5 billion, demonstrating confidence in future energy prices and cash generation.
Goldman Sachs acted as the lead adviser to Hess, while Morgan Stanley led the advisory team for Chevron.