Chevron said on Monday it agreed to buy Hess for $53 billion in stock, the second proposed mega-merger among the biggest U.S. oil players after Exxon Mobil bid $60 billion for Pioneer Natural Resources earlier this month.
The proposed deal raises the competition between Chevron, the No. 2 U.S. oil and gas producer behind Exxon, putting it in direct competition with its bigger rival to develop drilling in nascent producer Guyana.
The deal also signals Chevron’s plans to continue boosting investments in fossil fuels as oil demand remains strong and big producers use acquisitions to replenish their inventory after years of under-investment.
Chevron has offered 1.025 of its shares for each Hess share held, or $171 per share, implying a premium of about 4.9% to the stock’s last close. The total deal value is $60 billion, including debt.
Chevron’s shares were trading 3% lower premarket. RBC analysts said they were surprised by the deal timing and had expected the company to bide its time after Exxon’s mega deal for Pioneer.
Guyana has become a major oil producer following huge discoveries in recent years, turning it into one of Latin America’s most prominent producers, only surpassed by Brazil and Mexico.
Exxon and partners Hess and China’s CNOOC are the only active oil producers in the country. Their projects are expected to reach 1.2 million barrels per day of output by 2027.
Hess Corp CEO John Hess is expected to join Chevron’s board of directors once the deal closes around the first half of 2024.
The combined company is expected to grow production and free cash flow faster and for longer than Chevron’s current five-year guidance, the companies said.
Chevron said that following the completion of the deal it intends to increase its share repurchases program by $2.5 billion to the top of its $20 billion annual range, in a sign of confidence in future energy prices and its cash generation.
Goldman Sachs was the lead adviser to Hess while Morgan Stanley was the lead adviser to Chevron, CNBC reports.
