On Monday, Chevron announced it had agreed to purchase Hess for $53 billion in stock. This is the second major merger between large American oil companies, with Exxon Mobil recently bidding $60 billion for Pioneer Natural Resources.
This deal intensifies the competition between Chevron, which is the second-largest U.S. oil and gas producer behind Exxon. It puts Chevron directly up against its larger competitor in developing drilling operations in Guyana, a country that’s just starting to produce oil.
Chevron’s Plan to buy Hess Merger
This agreement also shows Chevron’s intentions to keep investing in fossil fuels. They are doing this because the demand for oil is still strong, and major oil companies are using acquisitions to increase their oil reserves. This comes after many years of not investing enough in new reserves.
Chevron has proposed to exchange 1.025 of its shares for each share of Hess, which is equivalent to $171 per share. This suggests an extra value of approximately 4.9% compared to the last closing price of Hess stock. The entire value of the deal is $60 billion, which includes debt.
Before the market officially opened, Chevron’s shares were trading 3% lower. Analysts from RBC expressed their surprise at the timing of the deal, as they had expected Chevron to take its time, especially after Exxon’s significant merger with Pioneer.
In recent years, Guyana has made substantial oil discoveries, becoming a significant oil producer in Latin America. It now ranks among the top oil-producing countries in the region, trailing only behind Brazil and Mexico.
Future of Chevron and Hess
ExxonMobile, along with its partners Hess and China’s CNOOC, are the only companies actively producing oil in the country. They plan to increase their production to 1.2 million barrels per day by the year 2027.
Once the deal is finalized, the CEO of Hess Corp, John Hess, is expected to become a part of Chevron’s board of directors, which should happen in the first half of 2024.
The newly merged company is anticipated to experience faster and more prolonged growth in production and free cash flow compared to Chevron’s current five-year projections, as stated by both companies.
Following the completion of the deal, Chevron intends to boost its program for repurchasing shares by $2.5 billion, taking it to the maximum of the annual range, which is $20 billion. This move reflects Chevron’s confidence in future energy prices and its ability to generate cash.
Goldman Sachs served as the primary adviser to Hess, while Morgan Stanley played the leading advisory role for Chevron.
Chevron’s $53 billion stock purchase of Hess is a big step in the oil industry, creating fierce competition with Exxon. It shows Chevron’s dedication to investing in oil and marks their entry into the growing Guyana oil market. The CEO of Hess will soon join Chevron’s board, and there’s a plan for quick growth and buying back shares, indicating Chevron’s confidence in the oil market. Goldman Sachs and Morgan Stanley were key advisors in this significant deal.