Chevron Corp. agreed to buy Hess Corp. for US$53 billion, a deal aimed at boosting production growth as the United States oil industry bets on an enduring future for fossil fuels.
In an all-stock transaction, Chevron will pay US$171 per share for Hess, a premium of about 10 per cent to the 20-day average price, according to a statement from the companies on Oct. 23. Hess shareholders will receive 1.025 shares of Chevron for each Hess share, giving the company a total enterprise value of US$60 billion, including debt.
The acquisition will give Chevron a significant foothold in Guyana, the South American country that is one of the world’s newest oil producers. It will enable faster production growth and more generous returns to investors, according to the statement.
“The prize here is Guyana,” said Peter McNally, an analyst at Third Bridge Group. “And it’s only gotten bigger” since oil was first discovered in the country less than a decade ago, he said.
This is the second major deal in the U.S. oil industry in just a few weeks. Exxon Mobil Corp. has agreed to buy shale-oil producer Pioneer Natural Resources Co. for US$58 billion, underpinning a bet that oil and gas will remain central to the world’s energy mix for decades to come.
The acquisition will solidify the position of the U.S. majors at the very top of the international oil and gas industry. While their European peers have won back some favour from investors by shifting their emphasis from low-carbon energy back to fossil fuels since Russia’s invasion of Ukraine, the valuations of Exxon and Chevron remain far higher.
“This combination positions Chevron to strengthen our long-term performance and further enhance our advantaged portfolio by adding world-class assets,” chairman and chief executive Mike Wirth said in the statement.
Among independent U.S. oil companies, Hess has a long and storied history compared with the shale upstarts that have come to dominate the scene in recent years. It was founded in 1933 by 19 year-old Leon Hess, who started out running a single fuel-delivery truck and gradually expanded into a fleet of vehicles and a New Jersey oil terminal, according to the company’s website.
Hess bought its first oil tanker in 1948, built an oil refinery in 1957, and in 1960 opened the first of its iconic green and white gas stations that would become a common sight across the U.S. northeast. By the time Leon Hess retired in 1995, he had built a multinational with assets in the North Sea, Alaska and the Caribbean.
Buying Hess will give Chevron 30 per cent ownership of more than 11 billion barrels-equivalent of recoverable resources in Guyana, one of the world’s major new oil producers, according to the statement. It also adds acreage in the Gulf of Mexico and the Bakken, a smaller U.S. shale basin than Permian where production has already peaked.
The deal will boost Chevron’s estimated five-year production and free cash flow growth rates and extend them into the next decade, according to the statement. Returns to investors will also get a lift, with the company expecting to recommend an eight per cent increase in its first-quarter dividend in January, and a further US$2.5 billion of share buybacks once the deal has closed.
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The transaction has been unanimously approved by the boards of both companies and should close in the first half of 2024, according to the statement. It is subject to approval from Hess shareholders, regulators and other customary closing conditions.
Morgan Stanley & Co. LLC is lead financial adviser to Chevron, along with Evercore. Goldman Sachs & Co. LLC is acting as lead financial adviser to Hess, along with JP Morgan Securities LLC.