November 2024, Vol. 251, No. 11
Editor's Notebook
Editor’s Notebook: Chevron-Hess Mega-Deal Revisited
By Michael Reed, Editor-in-Chief
(P&GJ) — With the U.S. Federal Trade Commission (FTC) giving its blessing to Chevron’s acquisition of oil and gas explorer and producer Hess, we find ourselves firmly entrenched in the era of the oil and gas mega-deal.
While the all-stock transaction is valued at $53 billion, it is still not even the largest such deal in recent months. That would be ExxonMobil’s purchase of Pioneer Natural Resources, just last year.
Even larger, Shell’s acquisition of BG Group in 2016 was valued at about $75 billion, while the largest of them all was probably Exxon and Mobil’s $81 billion merger back in 1999.
“Like ExxonMobil’s acquisition of Pioneer, the Chevron-Hess deal is not an opportunistic play but a strategic decision, WoodMac said of the deal when it was made public. “Until the announcement of the ExxonMobil-Pioneer deal, Chevron was the leading major in the Permian Basin but was underweight in deepwater assets and faced rising concern over portfolio concentration risk.”
Speaking of ExxonMobil, there is still that company’s pivotal challenge to the Chevron-Hess deal, which could throw a monkey wrench into the proceedings, to contend with.
ExxonMobil is contesting the deal, with its key contention being whether the finalized deal would change control of Hess’s vital subsidiary in Guyana. Exxon Mobile holds a 45% stake in the Guyana consortium.
In other words, Exxon sees the deal as possibly altering the dynamics of the consortium, which it sees as Chevron’s intention. The Guyana project is estimated by some experts to make up as much as 80% of the $53 billion offered in the deal.
Exxon operates all production in the South American nation of Guyana with Hess and China’s CNOOC, as minority partners. Combined earnings last year were $6.33 billion on $11.25 billion in revenue, according to Reuters.
Located next to Venezuela, the small country of less than 14 million people is on track to produce more than 1 Bbpd by 2026.
Exxon claims it should have been given the right to first refusal from Hess on the change, since the deal is structured in a manner in which Hess would become an ongoing unit within Chevron.
That dispute will be settled by the International Chamber of Commerce (ICC) in arbitration, with the three-judge panel unlikely to render a decision until late 2025.
The deal will give Chevron 30% ownership of more than 11 billion barrels-equivalent of recoverable resources in Guyana. If successful, Chevron expects the deal to increase its free cash flow and extend its production growth into the 2030s.
The proposed merger was first announced last October, but since that time uncertainty over its closing has bumped Chevron stock shares down 1% this year. Hess shareholders will receive 1.025 shares of Chevron for each Hess share.
Combined with the Guyana strong production growth outlet and potential exploration upside, Chevron holdings in the Bakken would include 465,000 net acres of inventory supported by the integrated assets of Hess Midstream. It would also have complementary assets in the Gulf of Mexico.
Separately, the FTC blocked Hess CEO from receiving a board seat as a requirement of allowing the Chevron’s acquisition of the company to move forward.
In a similar move, the regulators stopped Pioneer Natural Resources CEO Scott Sheffield from taking a seat on the board of ExxonMobil as a condition of that merger.
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