Today: 16-04-2024

Chevron to acquire Hess for $53 billion amid oil market uncertainty

The deal comes less than two weeks after Exxon Mobil announced its acquisition of Pioneer Natural Resources for roughly $60 billion.

Chevron is acquiring Hess Corp. for $53 billion, and it's not even the largest energy sector acquisition this month, as major producers seize the initiative while oil prices rise.

Crude oil prices surged early in 2022 following Russia's invasion of Ukraine and have been hovering around $90 per barrel after a 9% increase this year. This means that large drilling companies have plenty of cash and are looking for places to invest it.

The Chevron-Hess deal comes less than two weeks after Exxon Mobil announced it would acquire Pioneer Natural Resources for around $60 billion.

Oil prices have been under upward pressure on multiple fronts, including the war in Ukraine.

Oil markets are already strained due to reduced oil production in Saudi Arabia and Russia. Now, the conflict between Israel and Hamas threatens to ignite a broader Middle East conflict. While attacks on Israel do not disrupt global oil supplies, according to the U.S. Energy Information Administration's analysis, "they increase the likelihood of oil supply disruptions and higher oil prices."

Chevron stated on Monday that acquiring Hess will add a significant oil field in Guyana, as well as shale assets in the Bakken formation in North Dakota. Guyana, a South American country with a population of 791,000, is poised to become the world's fourth-largest offshore oil producer, surpassing Qatar, the United States, Mexico, and Norway. In recent years, it has become a major producer, and oil giants, including Exxon Mobil, Chinese CNOOC, and Hess, have been in fierce competition for high-yield oil fields in northern South America.

"This combination aligns with our goal - to securely provide higher profits and reduce carbon emissions," said Chevron Chairman and CEO Mike Wirth in prepared remarks. "Hess also increases Chevron's projected production growth rates and free cash flow over the next five years and is expected to extend our growth profile into the next decade, supporting our plans to increase dividend growth and share buybacks among peers."

Chevron will pay for Hess in stock. Hess shareholders will receive 1.0250 Chevron shares for each Hess share. Including debt, Chevron valued the deal at $60 billion.

Despite climate change concerns after a summer of record-high temperatures, higher energy prices have led to increased exploration and drilling, as well as significant payouts to investors.

Last month, the UK approved a major oil and gas project in the North Sea, ignoring warnings from scientists and the United Nations that countries must stop developing new fossil fuel resources if the world wants to avoid catastrophic climate change.

Chevron said the deal will help increase the amount of cash returned to shareholders. The company expects to recommend a first-quarter dividend increase to $1.63, an 8% rise, in January. This still requires board approval. The company also plans to increase its share buyback program by $2.5 billion to the upper end of the $20 billion forecast range per year after the deal closes.

Chevron and Hess boards of directors approved the deal, announced on Monday, after six months of negotiations, and it is planned to close in the first half of next year. This still requires approval from Hess shareholders. John Hess, the company's CEO, is expected to join Chevron's board of directors. His family owns a significant stake in Hess.

Shares of Chevron Corp., based in San Ramon, California, fell over 2% before Monday's opening bell. Shares of Hess Corp., based in New York, edged up slightly.