Cash rich Chevron, the second-largest U.S. oil company after Exxon, and Dow component Chevron (CVX) on Monday announced it has entered into a definitive agreement to buy Hess Corporation (HESS) for $53 billion in an all-stock deal. Chevron will pay $171 per share for Hess, a premium of about 10% to the 20-day average price, according to a statement from the companies on Monday. Hess shareholders will receive 1.025 shares of Chevron for each Hess share, giving the company a total enterprise value of $60 billion, including debt. The acquisition gives Chevron a significant foothold in Guyana, where it’s competitor Exxon is a major producer and CVX says will enable faster production growth.
The deal continues an aggressive buying spree by the oil major who earlier in the year bought PDC Energy (PDCE) in an all of the outstanding shares of PDC in an all-stock transaction valued at $6.3 billion, or $72/share. PDC Energy CVX builds a bigger foothold in two prolific oil patches, the Denver-Julesburg Basin and the Permian Basin.
Hess will give Chevron 30% ownership of more than 11 billion barrels-equivalent of recoverable resources in Guyana according to the statement. It also adds acreage in the Gulf of Mexico and the Bakken.
“This combination positions Chevron to strengthen our long-term performance and further enhance our advantaged portfolio by adding world-class assets,” Chairman and Chief Executive Officer Mike Wirth said in the statement.
CVX Stock Market Reaction
- $160.68 -6.15(3.69%) today
- $160.68 -12.45(7.19%) past year
- $160.68 +43.47(37.09%) past 5 years
- 52wk High $183.01
- 52wk Low $147.04
HESS Stock Market Reaction
- $161.30 -1.72(1.06%) today – High was $166.50
- $161.30 +25.04 (18.38%) past year
- $161.30 +97.19(151.60%) past 5 years
- 52wk High $167.75
- 52wk Low $113.15
The deal also comes just a few weeks after Exxon Mobil agreed to buy shale-oil producer Pioneer Natural Resources for $58 billion. From a geopolitical point of view and in the midst of an aggressive OPEC+, the Exxon and Chevron acquisitions solidify the position of the U.S. majors at the very top of the international oil and gas tree.
The deal boosts Chevron’s estimated five-year production and free cash flow growth rates and extends them into the next decade, the statement reads. CVXS is expecting to recommend an 8% increase in its first-quarter dividend in January, and a further $2.5 billion of share buybacks once the deal has closed.
- Guyana – 30% ownership in more than 11 billion barrels of oil equivalent discovered recoverable resource with high cash margins per barrel, strong production growth outlook and potential exploration upside.
- Bakken – 465,000 net acres of high-quality, long-duration inventory supported by the integrated assets of Hess Midstream.
- Complementary Gulf of Mexico assets and steady free cash flow from Southeast Asia natural gas business.
The transaction has been unanimously approved by the boards of both companies and should close in the first half of 2024, according to the statement. It is subject to approval from Hess shareholders, regulators and other customary closing conditions.
About Hess
Hess was founded in 1933 by 19-year-old Leon Hess. Hess bought its first oil tanker in 1948, built an oil refinery in 1957 and in 1960 opened the first of its gas stations that would become a common sight across the U.S. northeast. By the time Leon Hess retired in 1995, he had built a multinational with assets in the North Sea, Alaska and the Caribbean.
Hess Corporation is a leading global independent energy company engaged in the exploration and production of crude oil and natural gas with leading positions offshore Guyana, the Bakken shale play in North Dakota, the deepwater Gulf of Mexico and the Gulf of Thailand. Globally, Hess is recognized as an industry leader in environmental, social and governance performance and disclosure. More information about Hess Corporation is available at www.hess.com.
Recap: Chevron Buys PDC Energy
Patience is a virtue, the premium for PDC represents a conservative purchase price, not dissimilar to Chevron’s single-digit premium deal for Noble Energy did in mid-2020, following the onset of the pandemic and a historic crunch in oil demand.
Chevron said it would issue roughly 41 million shares in the deal at 0.4638 share, worth $72 based on Friday’s closing price of $155.23, for each share of Denver-based PDC. It equates to a nearly 11% premium to Friday’s closing price of $65.12. Chevron said the deal has a total enterprise value of $7.6 billion, including PDC’s debt.
This deal builds a bigger foothold in two prolific oil patches, particularly the Denver-Julesburg Basin that straddles Colorado and Wyoming, a region where Chevron already has a large stake.
Chevron said the PDC deal would add 10% to its oil-equivalent proved reserves for under $7 a barrel and add 275,000 net acres adjacent to its position in the DJ Basin, along with 25,000 net acres in the prolific Permian Basin. The Permian Basin of West Texas and New Mexico is the most prolific American oil patch but one where Chevron and many other companies have seen well-productivity issues over the past year.
By comparison the 10% of wells Chevron brought online in the Delaware basin, part of the broader Permian Basin, were about 25% less productive on average than its wells the year before, The Wall Street Journal reported earlier this year, citing Novi Labs data.
CVX Stock Market Reaction
- $154.68 ▼ -0.55 (-0.35%) today
- $154.68 ▼ -13.18 (-7.85%) past year
- $154.68 ▲ +32.51 (+26.61%) past 5 years
- 52wk High $189.68
- 52wk Low $132.54
PDCE Stock Market Reaction
- $71.02 ▲ +5.89 (+9.05%) today
- $71.02 ▲ +3.04 (+4.48%) past year
- $71.02 ▲ +8.94 (+14.44%) past 5 years
- 52wk High $88.32
- 52wk Low $51.20
Noble Acquisition
The company’s $13bn acquisition of Noble, the first big move in a wave of mergers that swept through the battered US oil sector in 2020. closed in the fourth quarter of 2020. For 2018 through 2020, the company generated asset sales proceeds of $7.7 billion, in the middle of its guidance range of $5-$10 billion.
About Chevron
Chevron Corp. is a U.S.-based integrated oil and gas company with worldwide operations in exploration and production, refining and marketing, transportation and petrochemicals. It has large exposure to the Permian and to LNG with the Wheatstone Chevron LNG Facility production starting in Western Australia
The Permian Basin remains a key source of capital flexibility, and it is a key issue behind many analysts’ preference for Chevron versus some of the other majors. Chevron’s liquids-rich upstream segment is likely to benefit from higher crude price realizations. This segment is expected to record higher production volumes on the back of major capital projects including Gorgon, and core developments in the Gulf of Mexico and Permian Basin.
Sources: TradersCommunity, AlphaStreet, PDCE, Chevron
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