In a recent announcement, Chevron confirmed its intention to acquire Hess in a stock deal valued at $53 billion. This proposed merger comes shortly after Exxon Mobil made a bid for Pioneer Natural Resources worth an impressive $60 billion, marking another major consolidation within the U.S. oil industry earlier this month.
The proposed agreement increases competition between Chevron, the second-largest oil and gas producer in the United States after Exxon. This puts Chevron directly in competition with its larger rival to develop drilling operations in emerging producer Guyana.
The deal also indicates Chevron’s intention to increase investments in fossil fuels, as there is still strong demand for oil and major producers are using acquisitions to replenish their reserves after a period of inadequate investment.
Chevron is proposing a deal to acquire Hess by offering 1.025 of its own shares for each share of Hess held. This translates to a price of $171 per share, which represents a premium of approximately 4.9% over the closing price of Hess stock. The total value of the deal is estimated at $60 billion, taking into account both equity and debt considerations.
Chevron’s shares were down 3% in premarket trading, which caught analysts by surprise. They had anticipated that Chevron would wait after Exxon’s large deal with Pioneer.
Guyana has emerged as a significant player in the oil industry due to its substantial discoveries in recent years. This has elevated it to become one of the leading oil producers in Latin America, trailing only behind Brazil and Mexico.
As of now, only two oil companies are actively producing in the country. Their combined projects aim to achieve a daily output of 1.2 million barrels by 2027.
Once the deal is finalized in the first half of 2024, it is anticipated that John Hess, CEO of Hess Corp, will join Chevron’s board of directors.
According to the companies, the merged company is anticipated to experience faster and more prolonged growth in production and free cash flow compared to Chevron’s current five-year guidance.
Chevron announced that once the deal is finalized, it plans to boost its share repurchase program by an additional $2.5 billion, bringing it to the maximum range of $20 billion per year. This move reflects Chevron’s optimism about future energy prices and its strong cash generation capability.
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