HOUSTON, Oct 23 (Reuters) – Chevron ( CVX.N ) agreed to buy U.S. rival Hess ( HES.N ) for $53 billion in stock, risking future fossil fuels and higher shareholder returns.
The proposed deal increases competition between Chevron, America’s No. 2 oil and gas producer, and its larger rival, Exxon. This makes Chevron a partner with Exxon in Guyana’s growing oil fields, which are expected to produce 1.2 million barrels of oil per day by 2027.
It follows Exxon’s rapid-fire deals since July to U.S. shale producer Pioneer Natural Resources ( PXD.N ) and Denbury ( DEN.N ). Those two, nearly $64-billion combined deals put Exxon in US shale and cemented the company’s nascent carbon storage business.
The latest deals are a financial boost for U.S. oil and gas companies that have invested in fossil fuels as European rivals turn their attention to renewables. Chevron and Exxon took advantage of higher profits from stronger energy prices and demand after Russia’s invasion of Ukraine.
“We’ve got a lot of CEOs for the BOE (barrels of oil equivalent), so the consolidation is natural,” said Chevron Chief Executive Michael Wirth, adding that the world could expect other deals.
Chevron offered 1.025 of its shares, or $171 per share, for each Hess share, representing a premium of about 4.9% to the stock’s last close. The total contract value is $60 billion, including debt.
Shares of Chevron traded 2.3% lower and Hess shed a fraction in premarket trading. RBC analysts said they were surprised by the timing of the deal and had expected Chevron to bide its time after Exxon’s mega deal for Pioneer ( PXD.N ).
Following 11 billion barrels of oil and gas discoveries since 2015, Guyana has emerged as the world’s fastest growing oil province. Hess holds a 30% stake in the Exxon-led consortium, which now pumps 380,000 barrels a day.
The deal faces regulatory reviews, but “we don’t see any antitrust concerns here,” Wirth said. “It’s great for energy security: It brings together two great American companies.”
Hess Corp CEO John Hess will join Chevron’s board of directors when the deal closes in the first half of 2024. He said the government of Guyana and Exxon would welcome Chevron’s entry into the country’s oil fields.
The deal represents a 5% premium over Hess’s trading price. The combined companies expect to generate about $1 billion in cost synergies within a year of closing, Wirth said.
The combined company would expand Chevron’s oil production in less risky areas by adding to its production in the US Gulf of Mexico, bringing it into North Dakota’s Bakken shale, and partnering with fast-expanding Exxon and CNOOC (0883). HK) Stabroek oil block in Guyana.
Following the deal, Chevron said it intended to increase its share repurchase program by $2.5 billion to its $20 billion annual limit, a sign of confidence in future energy prices and its cash generation.
Goldman Sachs was the lead advisor to Hess, and Morgan Stanley was the lead advisor to Chevron.
Reporting by Mrinalika Roy in Bangalore and Sabrina Vale in Houston; Editing by Nivedita Bhattacharjee, Sriraj Kalluvila and Nick Zieminski
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