Chevron, one of the largest oil giants, has announced its plans to acquire rival company Hess in a $53 billion deal. This move comes as the oil industry experiences a wave of consolidation, with cash-rich companies capitalizing on high prices and profits to enhance shareholder returns and secure valuable assets. Despite mounting pressure to invest in renewable energy, these oil giants are seizing the opportunity to expand their hold on the oil market.
The acquisition of Hess would provide Chevron with even greater access to US shale production, particularly in Texas’ Permian Basin, where the company has long been a leader. Additionally, Hess holds significant oil assets in Guyana, which Chevron believes will contribute to its production growth over the next decade. Chevron’s Chairman and CEO, Mike Wirth, expressed his optimism about the deal, stating that it positions the company for long-term performance and strengthens their portfolio with world-class assets.
Wirth also emphasized the alignment of values and cultures between Chevron and Hess, including a shared commitment to lowering carbon. This, however, has drawn criticism from environmental advocates who believe that oil companies are not moving quickly enough to embrace renewable energy alternatives.
By acquiring Hess, Chevron expects an increase in its free cash flow, giving the company more financial flexibility for share repurchases. Chevron plans to intensify buybacks of its stock by an additional $2.5 billion, totaling $20 billion per year. This allocation of funds towards buybacks has been criticized by some who argue that oil companies should prioritize mitigating consumer costs at the pump or investing in renewable energy initiatives.
The recent surge in profits resulting from Russia’s invasion of Ukraine, which led to oil supply disruptions and price hikes, has further incentivized oil companies to pursue deals and expand their operations. ExxonMobil, another major player in the industry, recently announced its acquisition of shale company Pioneer for $60 billion, a move that could significantly bolster its Permian Basin operations if completed.
However, it remains uncertain whether ExxonMobil or Chevron will encounter any antitrust obstacles in finalizing their respective deals. The Biden administration has taken a more proactive stance on challenging corporate power based on antitrust grounds compared to previous administrations.
Following the announcement of the Chevron-Hess deal, Chevron’s stock experienced a slight decline of 3% in premarket trading, while Hess’s shares saw a marginal increase. Since the beginning of 2022, prior to the significant surge in oil prices resulting from Russia’s invasion of Ukraine, Hess shares have risen by 120%, while Chevron shares have increased by 42%.
Chevron is no stranger to major acquisitions, as evidenced by its purchase of Anadarko Petroleum in 2019 to bolster its shale business.
John Hess, the CEO of Hess, expressed confidence in the combined company and its ability to deliver shareholder value. The deal is also expected to generate approximately $1 billion in cost synergies.
It remains unclear whether the Hess brand will continue to exist following the merger, as the company previously sold its retail gas station business to Marathon in 2014 for $2.6 billion.
In conclusion, Chevron’s acquisition of rival company Hess in a $53 billion deal highlights the ongoing consolidation in the oil industry. By securing valuable assets and increasing access to shale production, Chevron aims to boost shareholder returns. However, this move has drawn criticism from environmental advocates who argue that the oil industry should prioritize renewable energy investments. As the Biden administration takes a more proactive stance on antitrust issues, it remains to be seen whether ExxonMobil and Chevron will face any obstacles in finalizing their respective deals.
