Chevron completes $53 billion acquisition of Hess Corp. amidst surging oil prices
San Ramon-based Chevron Corporation has finalized the purchase of New York City-based Hess Corporation for a staggering $53 billion, further highlighting the energy sector’s aggressive acquisition spree as oil prices soar.
The deal comes in the midst of escalating crude prices, which spiked in early 2022 following Russia’s invasion of Ukraine, and continue to hover around $90 per barrel after another 9% increase this year. This favorable market condition has resulted in major oil producers accumulating vast sums of cash and actively seeking investment opportunities.
Just weeks prior to Chevron’s acquisition of Hess, Exxon Mobil announced its plan to acquire Pioneer Natural Resources for approximately $60 billion. The energy sector is experiencing upward pressure on oil prices from multiple angles, including the ongoing war in Ukraine. In addition, production cutbacks in Saudi Arabia and Russia, along with the potential escalation of the conflict between Israel and Hamas, stand to disrupt global oil supply and further drive up prices.
Chevron’s acquisition of Hess unlocks several valuable assets for the company. The deal grants Chevron access to a significant oil field in Guyana, which is projected to become the world’s fourth-largest offshore oil producer. Additionally, Chevron gains shale properties located in North Dakota’s Bakken Formation. Over the past few years, Guyana has emerged as a major oil producer, attracting giants like Exxon Mobil, China’s CNOOC, and Hess, all competing fiercely for access to highly lucrative oil fields in the region.
Chevron’s Chairman and CEO, Mike Wirth, expressed enthusiasm for the deal, stating that it aligns with the company’s objective of delivering higher returns and reducing carbon emissions. Wirth believes that the acquisition of Hess will bolster Chevron’s estimated production and free cash flow growth rates over the next five years, extending their growth profile into the next decade. This, in turn, supports Chevron’s plans for peer-leading dividend growth and share repurchases.
The $53 billion deal will be primarily executed through stock exchange, with Hess shareholders receiving 1.0250 shares of Chevron for each Hess share. Including debt, Chevron values the transaction at $60 billion.
Despite heightened concerns over climate change, surging energy prices have fueled increased exploration and drilling activities, leading to substantial returns for investors. The energy sector has witnessed a wave of acquisitions focused on U.S. shale fields, as major producers aim to lower costs. Chevron itself acquired Noble Energy for $5 billion during the summer of 2020 when crude prices dropped over 30% due to the global pandemic. Other notable deals include ConocoPhillips’ purchase of shale producer Concho Resources for $9.7 billion that same year.
While climate change warnings persist, Chevron maintains that the acquisition will result in increased returns for shareholders. The company anticipates recommending an 8% boost to its first-quarter dividend, bringing it to $1.63 in January, pending board approval. Furthermore, once the deal is finalized, Chevron expects to increase stock buybacks by $2.5 billion, reaching the upper limit of its annual guidance range of $20 billion.
Both the boards of Chevron and Hess have approved the acquisition, which emerged after six months of negotiations. The deal is slated to close in the first half of next year, pending approval from Hess shareholders. John Hess, CEO of Hess Corporation, is expected to join Chevron’s board. The Hess family holds a significant stake in the company.
Following the announcement of the acquisition, Chevron’s stock experienced a minor decline of over 2%, while shares of Hess Corporation saw a slight dip.
As the energy sector continues to thrive amidst surging oil prices, major players are seizing opportunities for growth and consolidation, preparing themselves for a dynamic and lucrative future.
