Chevron, one of the leading oil companies, announced on Monday its agreement to acquire fellow oil company Hess in a deal worth $53 billion. This major acquisition reflects the ongoing trend of consolidation in the energy sector.
Under the terms of the deal, Hess shareholders will receive 1.025 shares of Chevron for each of their own shares. This values Hess shares at $171 each, based on Chevron's closing price on Friday. Including debt, the total value of the deal amounts to $60 billion.
While Chevron's shares fell by 2.7% to $162.28, Hess shares experienced a slight increase of 0.2% to $163.32 in early trading.
This acquisition follows Exxon Mobil's recent confirmation of its acquisition of Pioneer Natural Resources for $64.5 billion, further emphasizing the current wave of consolidation in the oil and gas industry. Both Chevron and Exxon have also made smaller acquisitions this year, with Chevron acquiring Colorado producer PDC Energy for $6.3 billion.
Notably, this trend differs from the formation of supermajor oil companies 25 years ago. Today's acquisitions focus on companies with concentrated asset bases and expertise in specific resources, which is an important distinction pointed out by energy expert Peter McNally at Third Bridge.
Hess, for instance, possesses shale holdings within the U.S., while most of its assets are located overseas. This includes a 30% stake in a consortium dedicated to offshore projects in Guyana, where it collaborates with Exxon.
The Chevron-Hess deal is expected to support higher shareholder returns and further solidify Chevron's position within the industry. As major players continue to merge and consolidate, the landscape of the oil and gas sector undergoes significant transformation.
Chevron to Acquire Hess's Largest Asset in Surprising Deal
In a surprising move, Chevron has announced its acquisition of Hess's largest asset, which accounts for approximately 75% of the total value of the company. Despite expectations that Chevron would purchase a company with more contiguous assets, they have chosen to invest in Guyana, a significant asset for both Exxon and Hess. Truist analyst Neal Dingmann expressed his surprise in a research note, noting the strategic decision made by Chevron.
As part of the deal, Chevron plans to recommend an 8% increase in its first-quarter dividend per share, amounting to $1.63. Additionally, if oil prices continue to remain favorable following a record profit in 2022, Chevron intends to increase share repurchases by $2.5 billion, reaching the top end of its guided range of $20 billion per year. These measures aim to maximize shareholder value while capitalizing on the transaction.
Chevron's Chief Financial Officer, Pierre Breber, emphasized the company's commitment to building on their successful track record of transactions. The acquisition of Hess is expected to drive significant growth in Chevron's free cash flow.
The deal has received approval from the boards of both Chevron and Hess. It is anticipated that the transaction will close in the first half of 2024. Upon completion, both companies expect to achieve $1 billion in cost savings before taxes within one year.
Looking ahead, Chevron anticipates increasing their asset sales and generating between $10 billion and $15 billion in proceeds before taxes over the period through 2028. These actions aim to optimize Chevron's portfolio while ensuring long-term financial stability and growth.
In summary, Chevron's acquisition of Hess's largest asset signifies a bold strategic move that positions them for continued success in the energy market. With favorable projections for future oil prices and an emphasis on shareholder value, Chevron is poised for sustained growth in the coming years.