Chevron’s Acquisition of Hess Corp: A $53 Billion Energy Sector Power Move

Chevron’s recent acquisition of Hess Corp for $53 billion has made waves in the energy sector. Interestingly, this substantial deal is not even the largest acquisition in the industry this month, as major energy producers are taking bold steps to capitalize on the surging oil prices.

The Chevron-Hess merger announcement comes on the heels of Exxon Mobil’s plan to acquire Pioneer Natural Resources for approximately $60 billion, demonstrating the aggressive acquisition strategy among energy giants. Crude oil prices have seen a 9% increase this year, remaining at around $90 per barrel for the past two months. The surge in energy prices began immediately after Russia’s invasion of Ukraine in early 2022.

Chevron’s strategic move involves the acquisition of Hess, which adds a significant oil field in Guyana to its portfolio, along with shale properties in the Bakken Formation located in North Dakota. Guyana, a South American nation with a population of 791,000, is poised to become the world’s fourth-largest offshore oil producer, surpassing countries like Qatar, the United States, Mexico, and Norway. It has rapidly emerged as a major player in the global oil industry, with oil giants like Exxon Mobil, China’s CNOOC, and Hess engaging in intense competition for highly lucrative oil fields in northern South America.

Notably, Chevron is financing the acquisition with stock. Each Hess shareholder will receive 1.0250 shares of Chevron for every share of Hess. When factoring in debt, Chevron’s valuation of the deal reaches $60 billion. This acquisition is expected to boost Chevron’s capacity to return cash to its shareholders, with plans to recommend an 8% increase in its first-quarter dividend to $1.63 in January, pending board approval. Additionally, the company anticipates a rise in stock buybacks by $2.5 billion, reaching the upper limit of its annual guidance range of $20 billion once the transaction is finalized.

This significant deal comes just a month after the conclusion of disruptive strike actions by unions at Chevron’s three liquefied natural gas plants in Australia, which collectively provide over 5% of global LNG supplies.

The acquisition has received approval from both companies’ boards and is set to conclude in the first half of the coming year, pending approval from Hess shareholders. John Hess, the CEO of Hess Corp, is expected to join Chevron’s board, given his family’s substantial ownership stake in the company.

In response to the news, Chevron Corp shares, based in San Ramon, California, saw a decline of more than 3% before the opening bell on Monday, while Hess Corp shares, headquartered in New York City, experienced a slight increase.