Chevron to buy Hess in US$53bn all-stock deal

Article by Kerry Hebden

AMERICAN oil giant Chevron is buying oil and gas producer Hess in an all-stock deal worth US$53bn. This is the second major oil buy-up this month, following ExxonMobil’s agreement to acquire US shale firm Pioneer Natural Resources in a deal worth US$59.5bn. 

Hess’ acquisition will give Chevron a foothold in Guyana, South America, a region that has emerged as one of the world's fastest-growing new oil territories with discoveries of more than 11bn barrels of oil.  

Over 25 significant discoveries, primarily within the Stabroek block, have been made since May 2015 by ExxonMobil, which together with its partners – including Hess – controls all production off this tiny nation. 

Chevron called the Stabroek block – a 6.6m acre offshore oil reservoir off Guyana's Atlantic coast – an “extraordinary asset with industry leading cash margins”. Hess has a 30% interest in the Stabroek block, as well as stakes in three other blocks including Kaieteur. This covers 3.3m acres and is equivalent in size to more than 580 deepwater blocks in the Gulf of Mexico, Hess said. 

As part of the deal, Chevron will also benefit from Hess’ Bakken and Three Forks shale assets in North Dakota. Forming part of the Williston Basin, which also spreads across Montana, as well as parts of Saskatchewan and Manitoba, the Bakken Shale ranks as one of the largest oil developments in the US in the past 40 years.  

Speaking to the Financial Times about the deal, John Hess, the son of Leon Hess who established the firm nine decades ago, said: “It’s sweet, I have to tell you.” He went on to call it “the right long-term decision for our shareholders”. The deal values his own family’s stake at about US$5bn. 

Under the terms of the agreement, Hess shareholders will receive 1.0250 shares of Chevron for each Hess share. In January, Chevron said it expects to recommend an increase to its first quarter dividend per share of 8% to US$1.63, which will be subject to the approval of the Chevron board of directors. 

John Hess is expected to join Chevron’s board of directors once the deal is closed in the first half of 2024. 

Reaching its peak?

Chevron’s deal comes less than two weeks after Exxon’s acquisition of Pioneer, prompting those in the industry to question whether further oil and gas buy-outs should be expected. “We’ve got too many CEOs per BOE [barrels of oil equivalent] so consolidation is natural,” Michael Wirth, chief executive of Chevron told The Guardian, adding that we can expect to see other deals. 

Another massive bet on oil is a further blow for environmental groups, as research put greenhouse gas emissions at “an all-time high” and the International Energy Agency branded “big oil” claims that oil and gas represented safe or secure choices for the world’s energy and climate future were “weaker than ever”. 

IEA executive director Fatih Birol said: “Governments, companies, and investors need to get behind clean energy transitions rather than hindering them. There are immense benefits on offer, including new industrial opportunities and jobs, greater energy security, cleaner air, universal energy access and a safer climate for everyone.” 

However, despite the push towards renewables, Wirth predicts demand for oil will continue to grow to 2030 and beyond. “We are not selling a product that is evil,” Wirth told the Financial Times.  “We’re selling a product that’s good.” 

Article by Kerry Hebden

Staff reporter, The Chemical Engineer

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