Chevron Corp. will buy US upstream company Hess Corp. in a $53 billion deal, adding billions of barrels of resources offshore Guyana and in the Bakken Shale and helping to underpin the US major's long-term performance, the company said Oct. 23.
The definitive agreement, signed by both companies' boards, comes less than two weeks after Exxon Mobil Corp. announced its $59.5 billion purchase of Pioneer Natural Resources Co., a deal focused on US Permian shale resources. The back-to-back deals underscore the consolidation trend in the US onshore segment of the industry.
"This combination positions Chevron to strengthen our long-term performance and further enhance our advantaged portfolio by adding world-class assets," Chevron Chairman and CEO Mike Wirth said.
The total enterprise value of the transaction, including debt, is $60 billion.
Value of the deal
In the wake of the Exxon-Pioneer deal announcement, financial analysts eyed Chevron as a prime candidate for the next Permian-based transaction to build on existing asset bases. But Wall Street analysts were surprised at the newly announced deal: Chevron zigged instead of zagged, choosing not to go head-to-head with Exxon Mobil in the Permian Basin.
Buying Hess gives Chevron assets where it had none before in North Dakota's Bakken Shale, as well as adding to positions in the Gulf of Mexico and Asia. But Hess' 30% nonoperated interest in Exxon's Guyana operations was the main prize.
"The Guyana asset is the crown jewel of the transaction," Tortoise Capital Advisors senior portfolio manager Rob Thummel said in an email after the deal announcement. "Exxon operates the Guyana offshore asset but Chevron will own 30% that Hess currently owns. Guyana oil growth is just starting to happen."
More than 11 billion barrels of oil equivalent have been discovered so far offshore Guyana, Chevron said, and the area has potential for further exploration. Industry insiders point out that Exxon Mobil is still in the early stages of plans for commercial gas production in Guyana and potential exports, amid discussion of a possible LNG facility.
"The Stabroek block ... is an extraordinary asset with industry-leading cash margins and low carbon intensity that is expected to deliver production growth into the next decade," Chevron said of the Guyana assets.
Andrew Dittmar, senior vice president for Enverus Intelligence Research, said the deal will be seen as a win as Guyana oil production ramps up.
"While the premium for Hess is modest at just 10.3% based on a 20-day average and 5% based on prior-day close, the deal still looks like a significant win for Hess shareholders as they roll their equity into Chevron at a time Hess has seen significant gains in its share price fueled by enthusiasm around its Guyana asset," Dittmar said.
Chevron faced concerns in recent years that the company's strategy was risking becoming overly concentrated on two areas: its giant Tengiz project in Kazakhstan and the US Permian. Chevron previously moved to diversify with its purchase of East Mediterranean gas producer Noble Energy Inc. in 2020.
Looking ahead
Chevron emphasized that the combined company is expected to increase production and free cash flow both faster and for longer than Chevron's previous five-year guidance would have expected.
Dittmar sees this extension of growth as a key element for both the Chevron deal and the Exxon transaction.
"The common thread connecting these deals is majors looking to refill their pipelines to maintain production against a declining asset base as they anticipate their legacy businesses staying profitable into the 2030s," Dittmar said in an email.
Stifel Nicolaus oil and gas analyst Derrick Whitfield said there are still deals left in the Permian, particularly with smaller companies.
"We believe a merger within the [small- to-midcap] universe drives the greatest potential upside for shareholders as evidenced by the performance of Devon Energy and Permian Resources versus the [SPDR S&P Oil & Gas Exploration & Production ETF] from the time of their respective merger announcements," Whitfield said after the Chevron-Hess deal was announced.
"In our view, mid-caps ... are best positioned to create value through mergers," Whitfield said, pointing specifically to Callon Petroleum Co., Matador Resources Co., SM Energy Co. and Vital Energy Inc.
The combined value of whole-company and minority-stake deals in the oil and gas industry rose to $33.37 billion in the third quarter of 2023, from $32.95 billion in the year-ago quarter.
S&P Global Commodity Insights reporter Nick Coleman produces content for distribution on Platts Connect. S&P Global Commodity Insights is a division of S&P Global Inc.
S&P Global Commodity Insights produces content for distribution on S&P Capital IQ Pro.