(Photo by Mario Tama/Getty Images)
Key takeaways
- Chevron has agreed to buy oil producer Hess for $53 billion in an all-stock deal.
- The move comes weeks after Exxon announced its own $60 billion merger with Pioneer Natural Resources.
- Chevron stock price fell 3.7% on Monday
Oil and gas giant Chevron has agreed to buy oil producer Hess for a whopping $53 billion, it announced this week, in a deal that has sparked comparisons to a race to oil companies in the sector.
Chevron’s $53 billion purchase of Hess is the latest in a string of mergers and acquisitions in the industry. The oil titan is seeking to capitalize on rival Exxon Mobil’s oil reserves in Guyana, first discovered in 2015. But Chevron and Hess shares both lost out. down Monday, despite the good news.
Let’s get into the details of the new Chevron-Hess tie-up, why it’s taking on rival Exxon Mobil in this area and how Wall Street took the news.
What’s going on at Chevron?
It’s official: Chevron is looking to catch up with Exxon after announcing its purchase of Hess for $53 billion. Chevron was offering about $171 per share, adding a premium of about 4.9% to Hess stock’s last close. Including debt, the total value of the transaction is $60 billion.
The acquisition means Chevron’s oil and gas production will increase to 3.7 million barrels per day (bpd). Chevron’s shale production, which Hess specializes in, will also increase by 40% to 1.3 million b/d, similar to Exxon’s output.
The buyout also shifts Chevron’s geographic footprint to less risky areas for oil production by increasing its production in the U.S. Gulf of Mexico and North Dakota. Chevron now owns 30% of the Exxon and CNOOC Stabroek oil field in Guyana. The oil field is expected to triple its production to 1.2 million bpd by 2027.
“This combination allows Chevron to strengthen our long-term performance and further enhance our advantageous portfolio by adding world-class assets,” said Mike Wirth, Chevron Chairman and CEO.
The move comes after rival Exxon announced it would buy Pioneer Natural Resources in a $60 billion all-stock deal, valued at $253 per share. The acquisition makes Exxon the largest oil producer in America’s largest oil field, with Chevron’s latest deal suggesting comparisons to an oil “arms race.”
Chevron has already completed two other buyouts recently, including the $7.6 billion acquisition of PDC Energy to strengthen its presence in the United States and the 2020 purchase of Noble Energy.
What is happening with oil prices?
Oil prices across the world have been quite strange this year, but have not stabilized since the conflict between Ukraine and Russia began early last year.
The International Energy Agency (IEA) estimated that global oil consumption reached a record high of 3 million barrels per day in June, but supply slowed due to confirmation by the Organization of Oil Exporting Companies (OPEC) to reduce its oil production by 1. million b/d for the rest of the year.
Recent geopolitical tensions have also caused oil prices to fluctuate. Oil indexes fell 2% on Monday as world powers called for calm in a bid to contain the ongoing conflict between Israel and Gaza.
High oil prices have benefited companies like Chevron and Exxon, which have doubled down on investments in oil and gas, while their European counterparts have chosen to focus on renewable energy. Chevron’s second-quarter profit was $5.8 billion and $3.08 earnings per share.
Chevron confirmed it was looking to increase its share buybacks to the top of its $20 billion annual range as long as oil prices remain high, as well as increase its annual dividend to 8%. Chevron will also increase its buybacks by $2.5 billion after the deal closes.
Wall Street’s reaction to the news
Chevron and Hess shares were lower during Monday trading, with Chevron shares falling 3.7% and Hess shares falling 1%. Both stock prices track crude oil prices, which also fell on Monday.
Chevron’s stock price is currently down 7.8% year to date, while Hess is up 17.68% over the same period. Shares of rival Exxon Mobil are up 2.4% in 2023.
The Chevron-Hess deal is still subject to regulatory reviews, but no antitrust issues are expected. Once the deal closes, Hess CEO John Hess is expected to join Chevron’s board of directors.
The essential
Chevron’s acquisition of Hess is the second mega-deal in weeks for the oil and gas sector, further separating the two conglomerates from the rest of Europe as market leaders – and companies where shareholders can bet on greater profits.
While stock price reaction may be linked to oil prices, it’s clear that the merger has been on the cards for Chevron and Hess for some time – and the combined company makes sense, especially if Chevron wanted to compete with Exxon in wealthy Guyana in oil. field.