HOUSTON (Reuters) – Chevron (CVX.N) has agreed to buy Hess (HES.N) shares for $53 billion to acquire a larger U.S. oil footprint and a major stake in rival Exxon Mobil (XOM.N). Huge discoveries in Guyana, the latest in a string of blockbuster US oil blocks.
Within weeks, the two largest US oil producers concluded deals worth more than $110 billion that will add years of oil production, much of it from US shale. These deals would leave European competitors that have shifted their focus to renewable energy further lagging behind fossil fuels.
“This is great for energy security: It brings together two great American companies,” said Chevron CEO Michael Wirth, who has boosted his shale oil and gas holdings by acquiring two US rivals. Noble energy.
The merger of Hess, BDC and Noble would raise Chevron’s total oil and gas production to about 3.7 million barrels per day. It will increase Chevron’s shale production by 40%, bringing it close to Exxon’s expected shale production of 1.3 million barrels per day following its acquisition of Pioneer Natural Resources.
The deal gives Chevron a huge stake in Guyana, as it will become a 30% owner of an Exxon-operated field that is expected to produce more than 1.2 million barrels per day by 2027. Chevron operates in Guyana, which neighbors Venezuela and Suriname.
Shares were sold off in midday trading Monday with Chevron down 2.6% to $162.46 and Hess down a fraction to $162.45.
“This transaction revolves around world-class Guyanese assets, which are by far the crown jewel in Hess’ portfolio,” Capital One Securities analysts wrote in a note.
Chevron said it will sell assets worth between $15 billion and $20 billion after the latest acquisition and plans to spend between $19 billion and $21 billion on major projects.
Chevron said that after completing the deal, it intends that share repurchases will reach the maximum of its annual range of $20 billion if oil prices remain high, and that shareholder dividends will increase by 8%.
The recent deals represent financial flexibility on the part of U.S. oil and gas companies that have continued to invest in fossil fuels as European competitors turn their attention to renewable fuels. Chevron and Exxon have made huge profits from rising energy prices and demand since the Russian 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 value of the deal is $60 billion, including debt.
RBC analysts said they were surprised by the timing of the deal, and they expect Chevron to bide its time after Exxon’s massive deal to buy Pioneer (PXD.N).
Guyana has emerged as one of the world’s fastest-growing oil provinces after discovering more than 11 billion barrels of oil and gas since 2015. Hess owns a 30% stake in an Exxon-led consortium that is now pumping 380,000 barrels per day.
The deal faces regulatory reviews, but Wirth said he does not anticipate antitrust concerns.
“We have too many CEOs per barrel of oil equivalent, so consolidation is a natural thing,” Wirth said, adding that the world can expect other oil deals.
John Hess, CEO of Hess, will join Chevron’s board of directors once the deal closes in approximately the first half of 2024. He said the Guyanese government and Exxon would welcome Chevron’s entry into the country’s oil fields.
The deal reflects a roughly 5% premium to Hess’s trading price. The combined companies expect to achieve about $1 billion in cost synergies within a year of closing, Wirth said.
The combined company will expand Chevron’s oil production in less risky areas by increasing its production in the US Gulf of Mexico, introducing it to North Dakota’s Bakken shale, and making it a partner in Exxon and CNOOC’s (0883.HK) Stabroek oil block in Guyana.
The deal follows Exxon’s brisk deals since July for Pioneer Natural Resources, the largest US shale oil producer, and Denbury. These two deals, worth nearly $64 billion, put Exxon at the top of U.S. shale and boosted the company’s nascent carbon storage business.
Goldman Sachs was lead advisor to Hess while Morgan Stanley was lead advisor to Chevron.
(Reporting by Mrinalika Roy in Bengaluru and Sabrina Valli in Houston; Preparing by Mohammed for the Arabic Bulletin) Editing by Nivedita Bhattacharjee, Sriraj Kalluvila and Nick Zieminski
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