Chevron buys Hess for $53 billion, 2nd buyout among major producers this month as oil prices surge

Chevron’s acquisition of Hess Corp. is significant as it marks a major consolidation within the energy sector, driven by surging oil prices and increased cash reserves among major producers. This move follows Exxon Mobil’s recent acquisition of Pioneer Natural Resources for about $60 billion, highlighting the trend of big drillers seeking investment opportunities.

Several factors have contributed to the increase in oil prices mentioned in the article. These include the Russia-Ukraine conflict, which initially drove prices up, as well as ongoing tensions in the Middle East, particularly the Israel-Hamas conflict. Additionally, cutbacks in oil production from Saudi Arabia and Russia have added upward pressure on oil prices.

The acquisition of Hess by Chevron adds significant assets to Chevron’s portfolio. It includes a major oil field in Guyana and shale properties in the Bakken Formation in North Dakota. Guyana, in particular, is poised to become a major offshore oil producer, potentially ranking fourth globally in offshore oil production.

Chevron is financing the acquisition of Hess primarily through stock. Hess shareholders will receive 1.0250 shares of Chevron for each Hess share. Including debt, Chevron values the deal at $60 billion.

Chevron intends to increase the amount of cash returned to its shareholders as a result of this acquisition. They anticipate recommending an 8% increase in the first-quarter dividend to $1.63 in January, pending board approval. The company also plans to raise stock buybacks by $2.5 billion to the top end of its guidance range, which is $20 billion per year, once the transaction is completed.

The acquisition of Hess by Chevron is targeted to close in the first half of the next year (2024). However, it still requires approval from Hess shareholders, and John Hess, the company’s CEO, is expected to join Chevron’s board as part of the deal.