Less than two weeks after ExxonMobil’s
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Chevron said in a release issued early Monday it has entered into a definitive agreement to purchase Hess with an all-stock transaction valued at $53 billion, or $171 per share based on Chevron’s closing price on Friday, October 20, 2023. Under the deal’s terms, shareholders of Hess will receive 1.0250 shares of Chevron for each Hess share. The total enterprise value, including debt, of the deal is $60 billion, slightly less the total value of $64.5 billion for ExxonMobil’s deal with Pioneer.
In addition to its Bakken and Guyana assets, Hess brings with it sizable operations in the Gulf of Mexico, along with significant free cash flow from a Southeast Asia natural gas business. “This combination positions Chevron to strengthen our long-term performance and further enhance our advantaged portfolio by adding world-class assets,” said Chevron Chairman and CEO Mike Wirth. “Importantly, our two companies have similar values and cultures, with a focus on operating safely and with integrity, attracting and developing the best people, making positive contributions to our communities and delivering higher returns and lower carbon.”
Hess CEO John Hess, who will be joining the Chevron Board of Directors as a part of the transaction, added, “I believe our strategic combination creates a company that is stronger in every respect, with the leadership, asset portfolio and financial resources to lead us through the energy transition and deliver significant shareholder value for years to come.”
Hess’s Bakken assets will add 465,000 net acres of shale production and drilling opportunities and a large midstream operation to Chevron’s large shale operations in Colorado’s DJ Basin and the Permian Basin of West Texas and Southeastern New Mexico. But the biggest prize in this deal is the 30% stake in the 6.6 million-acre Stabroek development, which is currently estimated to contain up to 11 billion barrels of crude oil, along with significant associated natural gas. In addition to Hess’s 30% ownership, ExxonMobil holds a 45% working interest in the consortium, with Chinese national oil company CNOOC controlling the remaining 25%.
With more than 30 discovery wells announced to date by ExxonMobil, overall Stabroek production reached 410,000 barrels of oil per day in July of this year. With Exxon’s plans for four additional projects to start-up in the coming years, total production at Stabroek is expected to exceed 1 million bpd by the end of 2027. The Guyana stake also enhances Chevron’s status as a major player in the booming offshore South America with its adjacent assets off the coasts of Suriname and Brazil.
Chevron says the deal will raise its estimated five-year production and free cash flow growth rates and will extend such growth into the next decade. The company’s release also projects increased cash returns to shareholders, with a proposed increase to its first quarter dividend of 8%, to $1.63 per share. Chevron said it also “intends to increase share repurchases by $2.5 billion to the top end of its guidance range of $20 billion per year in a continued upside oil price scenario” as a result of the merger.
The Bottom Line
Almost a quarter century has passed since the U.S. upstream oil and gas sector has produced a pair of $50 billion+ merger deals in such a compact period of time. While many analysts had pegged Chevron as a likely candidate for a big transaction, speculation had mainly centered on it possibly gobbling up an independent with a big Permian position.
This deal with Hess does enhance Chevron’s short-term and long-term position in U.S. shale, but the diversification of its offshore South America position provided by Hess’s major stake in the Stabroek development appears to be the biggest prize here.
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