Chevron to Buy Hess for $53 Billion in All-Stock Deal

(Reuters) — Chevron Corp agreed to buy Hess for $53 billion in stock to gain a bigger U.S. oil footprint and a large stake in rival Exxon Mobil Corp.'s massive Guyana discoveries, the latest in a series of blockbuster U.S. oil combinations.

The top two U.S. oil producers in weeks have struck more than $110 billion in deals that will add years of oil output, much of it from U.S. shale. The deals will leave European rivals that had shifted their focus to renewable energy further behind in fossil fuels.

"This is great for energy security: It brings together two great American companies," said Chevron Chief Executive Michael Wirth, who has bulked up its shale oil and gas holdings by acquiring U.S. rivals PDC Energy and Noble Energy.

The combination of Hess, PDC and Noble will bring Chevron's total oil and gas output to about 3.7 million barrels per day (bpd). It will expand Chevron's shale output by 40%, and put it neck and neck with Exxon's projected 1.3 million bpd shale output following its Pioneer Natural Resources acquisition.

“The Hess acquisition will meaningfully increase Chevron’s production, providing it with a substantial stake in the large low-cost development in Guyana. The transaction being all-stock makes the acquisition only modestly leveraging to Chevron’s very strong financial profile following multiple years of debt reduction,” Elena Nadtotchi, senior vice president for Moody’s Investors Service, said.

The deal gives Chevron a huge stake in Guyana, where it will become a 30% owner of an Exxon-operated field expected to produce more than 1.2 million bpd by 2027. Chevron operates in Guyana neighbors Venezuela and Suriname.

Shares sold off in midday trading on Monday with Chevron down 2.6% at $162.46 and Hess falling a fraction, to $162.45.

"This deal is all about the world-class Guyana asset, which is by far the crown jewel in the Hess portfolio, wrote Capital One Securities analysts in a note.

Chevron said it would sell between $15 billion to $20 billion in assets following the latest acquisition and plans to spend between $19 billion and $21 billion on major projects.

Cash Distribution

Chevron said that following completion of the deal it intends for share repurchases to reach the top of its $20 billion annual range if oil prices remain high, and will increase its shareholder dividend by 8%.

The recent deals are a financial flex by U.S. oil and gas companies that kept investing in fossil fuels as European rivals turned their attention to renewable fuels. Chevron and Exxon accumulated huge profits from strong energy prices and demand since Russia's invasion of Ukraine.

Chevron offered 1.025 of its shares for each Hess share, or about $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.

RBC analysts said they were surprised by the deal timing, and had expected Chevron to bide its time after Exxon's mega deal for Pioneer.

Guyana has emerged as one of the world's fastest growing oil province following more than 11 billion barrels of oil and gas discoveries since 2015. Hess holds a 30% stake in an Exxon-led consortium now pumping 380,000 barrels per day.

The deal faces regulatory reviews, but Wirth said he is not expecting anti-trust concerns.

"We've got too many CEOs per BOE (barrels of oil equivalent), so consolidation is natural," said Wirth, adding the world could expect to see other oil deals.

Hess CEO John Hess will join Chevron's board of directors once the deal closes around 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 reflects about a 5% premium to Hess's trading price. The combined companies expect to generate about $1 billion in cost synergies within a year of its closing, said Wirth.

The combined company will expand Chevron's oil production in less risky regions by adding to its output in the U.S. Gulf of Mexico, bringing it into the Bakken shale in North Dakota, and make it a partner in the rapidly-expanding Exxon and CNOOC Stabroek oil block in Guyana.

The deal follows Exxon's rapid-fire deals since July for top U.S. shale producer Pioneer Natural Resources and Denbury. Those two, nearly $64-billion combined transactions put Exxon atop U.S. shale and cemented the firm's nascent carbon storage business.

Goldman Sachs was the lead adviser to Hess while Morgan Stanley was the lead adviser to Chevron.

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