Chevron said today it is buying Hess in an all-stock transaction valued at $53 billion, the second megadeal this month following ExxonMobil’s deal to buy Pioneer Natural Resources.
The US supermajor said the acquisition of Hess upgrades and diversifies its advantaged portfolio, securing interests in multiple offshore resource plays and a sizeable addition to its US shale assets in North Dakota.
The deal makes Chevron a partner with ExxonMobil in the prolific Stabroek block offshore Guyana, gaining a 30% ownership in more than 11 billion BOE discovered recoverable resource with high cash margins per barrel, strong production growth outlook, and potential exploration upside, the company said.
The deal adds 465,000 net acres of inventory and supporting integrated assets in the Bakken Shale to Chevron’s DJ and Permian basin operations. Chevron also adds Hess’ complementary Gulf of Mexico assets and steady free cash flow from its Southeast Asia natural gas business.
“This combination positions Chevron to strengthen our long-term performance and further enhance our advantaged portfolio by adding world-class assets,” said Chevron CEO Mike Wirth. “Importantly, our two companies have similar values and cultures, with a focus on operating safely and with integrity, attracting and developing the best people, making positive contributions to our communities, and delivering higher returns and lower carbon.”
The deal also is expected to achieve run-rate cost synergies of about $1 billion before tax within a year of closing. The company said that with a stronger portfolio after the closing, it expects to increase asset sales and generate $10 to $15 billion in before-tax proceeds through 2028.
According to Chevron, the combined company is expected to grow production and free cash flow faster and for longer than Chevron’s current 5-year guidance.
“This strategic combination brings together two strong companies to create a premier integrated energy company,” said John Hess, CEO of Hess. “I believe our strategic combination creates a company that is stronger in every respect, with the leadership, asset portfolio, and financial resources to lead us through the energy transition and deliver significant shareholder value for years to come.”
The deal values Hess at $171 per share, a 10.3% premium to its prior 20-day average based on Chevron’s closing stock price on 20 October. Including debt, the transaction has a total enterprise value of $60 billion and includes net debt and book value of non-controlling interest.
Andrew Dittmar, a senior vice president at Enverus Intelligence Research, noted that the deal is the fourth-largest ever by enterprise value, just behind Pioneer and ahead of Occidental’s purchase of Anadarko Petroleum. The sale is a closing chapter for a company that the Hess family has led for 90 years.
"The common thread connecting these deals is majors looking to refill their pipelines to maintain production against a declining asset base as they anticipate their legacy businesses staying profitable into the 2030s," he said.
"In addition, both Exxon and Chevron are using all-stock consideration, which cuts across the idea that majors’ vast cash hordes would incite another round of mergers and acquisitions. Although, in an indirect way, the cash is still supportive of these deals as generous buyback programs allow the companies to trim share counts over time after issuing the new equity," he said.
"While the premium for Hess is modest at just 10.3% based on a 20-day average and 5% based on prior-day close, the deal still looks like a significant win for Hess shareholders as they roll their equity into Chevron at a time Hess has seen significant gains in its share price fueled by the enthusiasm around its Guyana asset."
Another similarity between the Exxon and Chevron deals is that the newly acquired assets will provide significant growth for the buyers, according to Dittmar.
"While Pioneer followed the model of other shale companies and targeted flat or minimally growing volumes, Exxon plans to ramp up production in the Permian," he said. "Hess was already on a [greater] growth trajectory than Chevron, so incorporating those assets into the Chevron portfolio will weigh the company further towards growth even without a change in Hess’ standalone plans."
Dittmar noted that the underlying asset bases purchased by Exxon and Hess are quite different.
"Exxon redoubled its focus on US unconventional production, particularly the Permian Basin. Chevron is making a balanced bet that includes increased exposure to the Williston Basin. However, it is much more tilted towards international exposure, with the premier asset in Hess’ portfolio being its interest in the Stabroek block in Guyana," he said, adding that Enverus views around 80% of the total deal value as being allocated to Guyana.
The transaction is slated to close in the first half of 2024, subject to regulatory and shareholder approvals.
