Chevron agreed on Monday to purchase Hess for $53 billion, the latest move by an U.S. oil major to solidify its hold on the oil production as the sector heads into uncertain territory. Dow Jones component CVX edged down along with HES Monday.
Chevron's decision to buy Hess comes just two weeks after ExxonMobil reported its $60 billion grab of Pioneer Natural Resources. In the all-stock transaction CVX will pay $171 per share for Hess, a premium of more than 10% on a 20-day average share price.
Hess shareholders will receive 1.025 shares of CVX for each Hess share. The total enterprise value, including debt, of the transaction is $60 billion. The deal is expected to close in the first half of 2024, according to Chevron.
Chief Executive John Hess is also expected to join Chevron's Board of Directors, according to the company.
Third Bridge analyst Peter McNally wrote Monday the current acquisition activity from Chevron and ExxonMobil reminds him of the creation of the super majors around 25 years ago.
"Back then, the super majors were consolidating to drive costs lower. Today, the companies being acquired today like Hess and Pioneer Natural Resources have more concentrated asset bases and expertise built in developing specific resources," McNally wrote.
Dow Jones stock Chevron fell 3.7% to 160.60 Monday during market trade. Hess stock edged up early before falling 1% to 161.35. Last week, Chevron stock gained 1.7% closing on Friday at 166.83. HES shares veered 1.8% lower to 163.02 Friday.
Chevron Stock: Solidifying Production
The Hess acquisition bolsters Chevron's booked reserves, primarily through Hess's significant discovery in Guyana, which the company plans to develop over the next decade. The move also adds Hess's Bakken shale assets to Chevron's portfolio, expanding CVX's U.S. shale position positions in the Permian Basin the Denver-Julesberg Basin.
Hess has forecast Guyana is on track to have more than 1 million barrels per day of production capacity by 2026, likely exceeding Venezuela for oil production, according to analysts.
Two weeks ago, ExxonMobil said it would acquire PXD in a move to fortify its leading position in the Permian Shale basin, claiming its production volume in the Permian would more than double to 1.3 million barrels per day.
"Building on our track record of successful transactions, the addition of Hess is expected to extend further Chevron's free cash flow growth," Chevron's Chief Financial Officer Pierre Breber said in the press release. "With greater confidence in projected long-term cash generation, Chevron intends to return more cash to shareholders with higher dividend per share growth and higher share repurchases."
McNally added Monday that other than the U.S., Chevron is betting on South America when it comes to oil production.
"By adding Guyana to its portfolio through this acquisition of Hess, the U.S. oil major is complementing its position in neighboring Venezuela," McNally said.
Oil Major Earnings
The major acquisitions from Chevron and ExxonMobil come ahead of the two energy giant's third-quarter earnings reports on Friday. Analysts expect XOM to see earnings fall 46% to $2.37 per share with revenue projected to decline 17% to $93.41 billion.
Meanwhile, Wall Street forecasts Chevron EPS contracting 35% to $3.60 with sales decreasing 23% to $51.38 billion.
Both ExxonMobil and Chevron saw record profit in 2022 on the back of surging oil and natural gas prices.
U.S. oil prices eased Monday, falling 2.5% to around $86 per barrel. Last week West Texas Intermediate prices advanced to around $90 per barrel as the Israel-Hamas war clouded the oil market outlook. Early on in the Middle East conflict, Israel ordered Chevron to shut down natural-gas production at one of its two offshore production platforms in the eastern Mediterranean.
Please follow Kit Norton on X, formerly known as Twitter, @KitNorton for more coverage.
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