O&G Acquisitions Continue to Heat Up with Hess Sale to Chevron

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If ExxonMobil lit the acquisition fire by buying Pioneer Natural Resources, then Chevron poured gas on the flames by purchasing Hess Corporation for $53 billion. Hess boasts a diverse portfolio that includes holdings in the Bakken Shale of North Dakota and offshore assets spanning the Gulf of Mexico, Gulf of Thailand, and off the coast of Guyana, making the oil and gas giant look attractive to Chevron in its quest to strengthen its global presence.

According to a recent press release, Chevron said the new and combined company “is expected to grow production and free cash flow faster and for longer than Chevron’s current five year guidance.”

“These are two great American companies combing together to be even stronger at a time when investment in American energy is important from the standpoint of jobs and from the standpoint of energy security,” said Mike Wirth, Chevron Chief Executive, in a Monday interview.

Upon Chevron closing its doors this past Friday, the acquisition valued Hess at $171 per share, and shareholders of Hess received 1.025 shares of Chevron for shares of Hess. While representing a 4.9 percent premium at Friday’s closing, it equates to 10.3 percent when propped up to the 20-day average price of the stock. While Chevron and Hess stocks exhibited a downward turn, the new deal carries a $60 billion value.

Like any arrangement made in mergers and acquisitions, specific provisions accompany the purchase. After leading Hess for multiple decades and securing a nine percent ownership stake, John Hess, the firm’s chief executive, will more than likely become a member of Chevron’s board.

By strengthening its current foothold, Chevron will take ownership of almost one-third of the approximate 11 billion barrels of oil and gas discovered in the Guyana play. While production boosted from nothing four years ago to 400,000 barrels a day, Chevron foresees producing 1.2 million barrels daily by 2027. Many analysts believe Guyana’s assets will be responsible for $180 billion in market share at this projected rate.

Wirth pointed to a long-term presence strengthened by the Hess assets. In addition to shoring up Chevron’s portfolio, the Hess acquisition is expected to levy $1 billion in cost savings within the first year of closing the deal. Additionally, Wirth foresees significant profitability in drilling well into the next ten years of business.

Chevron and Hess publicized its deal while the O&G world remains stunned by Exxon’s Pioneer purchase. While renewables grow in possibility and popularity, the fossil fuel industry continues to be scrutinized. Wirth, however, responds with justified support of fossil fuel production regardless of the Biden administration and environmental activists’ numerous attempts to derail the industry’s very existence.

“I don’t think this would in any way be read as not being supportive of a lower carbon future, but it also recognizes the reality that oil and gas are important today and will be for many, many years to come,” said Wirth.

Responding to the news of the Hess sale and Wirth’s comments, Mark van Baal of Follow This, a climate-inspired investment organization, called on investors to wage increased pressure on oil and gas moguls to reduce production. He added that the very spirit of the Chevron and Hess arrangement countered the Paris climate agreement.

Chevron’s announcement to acquire Hess exemplifies the industry’s resilience and plans to go nowhere anytime soon. This is primarily due to the International Energy Agency recently reporting that fossil fuels would reach ultimate success and return during the current decade.

Chevron is familiar with mergers and acquisitions. It has proven its position with its purchase of PDC Energy for over $6 billion in May and its surprise departure from the deal table with Anadarko. Its agreement to purchase Hess is Chevron’s third acquisition since 2020, mirroring Wirth’s strategy of scaling up through the merger and acquisition process.

“Ours is an industry, particularly as you get into the shale patch, that was due for some consolidation,” Wirth told investors during a Monday call.

Awaiting regulatory and Hess shareholder approval, the deal is expected to close within the first part of 2024. Neither Wirth nor Hess foresee any issues ahead and said they expect Guyana’s government to continue to adhere to the current production-sharing agreement established with the consortium.

“In the global crude market, we’re a small player,” said Wirth on the call.

Author Profile

Nick Vaccaro

Freelance Writer and Photographer

Nick Vaccaro is a freelance writer and photographer. In addition to providing technical writing services, he is an HSE consultant in the oil and gas industry with twelve years of experience. Vaccaro also contributes to SHALE Oil and Gas Business Magazine, American Oil and Gas Investor, Oil and Gas Investor, Energies Magazine and Louisiana Sportsman Magazine. He has a BA in photojournalism from Loyola University and resides in the New Orleans area. Vaccaro can be reached at 985-966-0957 or nav@vaccarogroupllc.com.