If you want to be the last man standing when the oil patch runs dry, you have to spend some cash. Or at least issue more stock.
Chevron Corp. (NYSE: CVX) did that Monday morning when it announced the acquisition of Hess Corp. (NYSE: HES) for $53 billion in Chevron stock. Including Hess debt, the value of the deal is $60 billion.
Just over two weeks ago, Exxon Mobil Corp. (NYSE: XOM) agreed to acquire Pioneer Natural Resources Inc. (NYSE: PXD) for $59.5 billion. Like Chevron’s deal for Hess, Exxon’s deal is all stock. Unlike the Exxon-Pioneer deal, which included U.S. assets, Chevron is buying a stake in assets offshore of Guyana.
Premium to Stock Price of Hess
Chevron is paying a premium of about 10.3% for Hess, slightly richer than the 7% premium Exxon agreed to pay for Pioneer. When Occidental Corp. (NYSE: OXY) acquired Anadarko in 2019, the company paid a 19% premium that included 25% in cash and the rest in Oxy stock. That deal was valued at $57 billion.
In addition to its Guyana assets, Hess holds leases on 465,000 acres in the Bakken Shale play of North Dakota and Montana. Hess also operates wells in the Gulf of Mexico and the waters offshore of Southeast Asia.
It’s All About Guyana
But the big get here is the 30% Hess stake in more than 11 billion barrels of recoverable resource in the Stabroek block offshore of Guyana. Exxon holds a 45% stake in Stabroek, and China’s CNOOC has the rest. Exxon is also the operator of the Stabroek block.
Since 2015, 18% of all global offshore resource discoveries and 32% of discovered oil (9.2 billion barrels) were made offshore of Guyana.
Analysts at Norway’s Rystad Energy said earlier this year that Guyana will surpass the United States, Norway and Mexico in oil production before 2035. Only Saudi Arabia, Brazil and the United Arab Emirates will produce more.
Guyana’s crude exports rose from just over 100,000 barrels a day in 2021 to about 225,000 per day last year. Exxon expects production to reach 1.2 million barrels of oil equivalent by 2027.
Other Details of the Deal
Chevron and Hess expect the acquisition to close in the first half of next year. The supermajor will issue approximately 217 million new shares of common stock to Hess shareholders. The boards of directors of both companies have approved the deal. Hess shareholders must also approve the deal, and it must meet regulatory and other closing conditions as well. (These companies have the best reputations.)
To ease the sting on existing shareholders, Chevron plans to boost its dividend and stock buybacks. In its press release, the company said it plans to raise its dividend in January by 8% to $1.63 per quarter ($6.25 annualized). After the deal closes, Chevron intends to boost its share buyback by $2.5 billion to $20 billion, the top end of its guidance range.
Hess stock traded up less than 1% in Monday’s premarket session at $164.00. Its 52-week range is $113.82 to $167.75.
Chevron stock traded down 3.4% at $161.15, in a 52-week range of 149.74 to $189.68.
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