Chevron Corp agreed to buy Hess for $53 billion in stock to gain a bigger US oil footprint and a large stake in rival Exxon Mobil Corp’s massive Guyana discoveries, the latest in a series of blockbuster US oil combinations.
The top two US oil producers in weeks have struck more than $110bn in deals that will add years of oil output, much of it from US shale. The deals will leave European rivals that had shifted their focus to renewable energy further behind in fossil fuels.
“This is great for energy security: It brings together two great American companies,” said Chevron Chief Executive Michael Wirth, who has bulked up its shale oil and gas holdings by acquiring US rivals PDC Energy and Noble Energy.
The combination of Hess, PDC and Noble will bring Chevron’s total oil and gas output to about 3.7 million barrels per day (bpd). It will expand Chevron’s shale output by 40 per cent, and put it neck and neck with Exxon’s projected 1.3 million bpd shale output following its Pioneer Natural Resources acquisition.
The deal gives Chevron a huge stake in Guyana, where it will become a 30pc owner of an Exxon-operated field expected to produce more than 1.2m bpd by 2027. Chevron operates in Guyana neighbors Venezuela and Suriname.
Shares sold off in midday trading on Monday with Chevron down 2.6pc at $162.46 and Hess falling a fraction, to $162.45.
“This deal is all about the world-class Guyana asset, which is by far the crown jewel in the Hess portfolio, wrote Capital One Securities analysts in a note.
Chevron said it would sell between $15bn to $20bn in assets following the latest acquisition and plans to spend between $19bn and $21bn on major projects.
Chevron said that following completion of the deal it intends for share repurchases to reach the top of its $20bn annual range if oil prices remain high, and will increase its shareholder dividend by 8pc.
The recent deals are a financial flex by US oil and gas companies that kept investing in fossil fuels as European rivals turned their attention to renewable fuels. Chevron and Exxon accumulated huge profits from strong energy prices and demand since Russia’s invasion of Ukraine.
Chevron offered 1.025 of its shares for each Hess share, or about $171 per share, implying a premium of about 4.9pc to the stock’s last close. The total deal value is $60bn, including debt.
RBC analysts said they were surprised by the deal timing, and had expected Chevron to bide its time after Exxon’s mega deal for Pioneer.
Guyana has emerged as one of the world’s fastest growing oil province following more than 11bn barrels of oil and gas discoveries since 2015. Hess holds a 30pc stake in an Exxon-led consortium now pumping 380,000 barrels per day.
The deal faces regulatory reviews, but Wirth said he is not expecting anti-trust concerns.
“We’ve got too many CEOs per BOE (barrels of oil equivalent), so consolidation is natural,” said Wirth, adding the world could expect to see other oil deals.
Hess CEO John Hess will join Chevron’s board of directors once the deal closes around the first half of 2024. He said the government of Guyana and Exxon would welcome Chevron’s entry into the country’s oil fields.