In a significant move within the US oil sector, Chevron Corporation has inked a deal to acquire Hess Corporation for a staggering $53 billion in stock. This announcement comes mere weeks after Exxon Mobil’s historic $60 billion takeover of Pioneer Natural Resources, marking the second mega-merger in the American oil industry within a month.
The acquisition underscores Chevron’s resolute commitment to bolstering investments in fossil fuels. This strategic decision is in response to the persistent robust demand for oil, coupled with a trend among major producers to rely on acquisitions for replenishing their inventory due to years of underinvestment.
Under the terms of the agreement, Chevron has proposed to exchange 1.025 of its own shares for each Hess share held. This offer translates into a premium of $171 per share, culminating in a comprehensive deal value of $60 billion, inclusive of debt. The announcement has sent Chevron’s premarket shares down by 3%, confounding analysts who had anticipated a more measured response in the wake of Exxon’s recent groundbreaking acquisition.
The impetus for this mega-merger stems from the sustained growth of Latin American producers, notably Guyana, which has emerged as a significant contributor subsequent to a series of substantial oil discoveries. Presently, the exclusive active oil producers in Guyana are Exxon, in collaboration with partners Hess and China’s CNOOC. Their collective projects are projected to achieve an output of 1.2 million barrels per day by 2027.
Upon completion of the merger, the combined entity is poised to experience accelerated growth, superior free cash flow, and outperform Chevron’s existing five-year projections, as outlined by both companies. Chevron also plans to ramp up its share repurchase program, aiming to reach the upper limit of its $20 billion annual range post-closure, affirming its confidence in energy market dynamics and its internal cash generation capabilities.
Hess Corporation received advisory services from Goldman Sachs, while Chevron was advised by Morgan Stanley throughout the negotiation process. Upon finalization, slated for the first half of 2024, current CEO of Hess Corporation, John Hess, is set to assume a position on Chevron’s board of directors.
This proposed merger sets the stage for an unprecedented rivalry between Chevron and its formidable counterpart, Exxon, and notably positions Chevron as an unconventional partner alongside Exxon in the pivotal Guyana venture.
Source: Reuters
