Global oil and gas major Chevron Corporation based in the US, has announced on Monday that it will acquire Hess Corporation in an all-stock transaction valued at $53 billion, or $171 per share based on Chevron’s closing price on 20 October 2023.
Under the terms of the agreement, Hess shareholders will receive 1.0250 shares of Chevron for each Hess share. The total enterprise value, including debt, of the transaction is $60 billion. This is the second mega deal in the US energy market as Exxon Mobil said that it would acquire Pioneer Natural Resources for about $60 billion a fortnight ago.
The acquisition of Hess diversifies Chevron’s already advantaged portfolio. The Stabroek block in Guyana is an extraordinary asset with industry leading cash margins and low carbon intensity that is expected to deliver production growth into the next decade.
Hess’ Bakken assets add another leading US shale position to Chevron’s DJ and Permian basin operations and further strengthen domestic energy security. The combined company is expected to grow production and free cash flow faster and for longer than Chevron’s current five-year guidance. In addition, John Hess is expected to join Chevron’s Board of Directors.
Chevron’s Chairman and CEO Mike Wirth said that this combination positions Chevron to strengthen its long-term performance and further enhance the company’s advantaged portfolio by adding world-class assets.
“Importantly, our two companies have similar values and cultures, with a focus on operating safely and with integrity, attracting and developing the best people, making positive contributions to our communities and delivering higher returns and lower carbon,” Wirth explained.
Pierre Breber, Chevron’s CFO said that building on Chevron’s track record of successful transactions, the addition of Hess is expected to extend further Chevron’s free cash flow growth.
“With greater confidence in projected long-term cash generation, Chevron intends to return more cash to shareholders with higher dividend per share growth and higher share repurchases,” Breber added.
Hess CEO John Hess said that this strategic combination brings together two strong companies to create a premier integrated energy company.
“I am proud of our people and what we have achieved as a company, which has one of the industry’s best growth portfolios including Guyana, the world’s largest oil discovery in the last 10 years, and the Bakken shale, where we are a leading oil and gas producer,” he said.
Capital and Cost Efficient:
The combined company’s capital expenditures budget is expected to be between $19 and $22 billion. With a stronger portfolio after closing, Chevron expects to increase asset sales and generate $10 to $15 billion in before-tax proceeds through 2028.
The transaction is expected to achieve run-rate cost synergies around $1 billion before tax within a year of closing.
The acquisition consideration is structured with 100 percent stock utilizing Chevron’s equity. In aggregate, upon closing of the transaction, Chevron will issue approximately 317 million shares of common stock. Total enterprise value of $60 billion includes net debt and book value of non-controlling interest.
The transaction has been unanimously approved by the Boards of Directors of both companies and is expected to close in the first half of 2024. The acquisition is subject to Hess shareholder approval. It is also subject to regulatory approvals and other customary closing conditions.
The transaction price represents a premium of 10.3% on a 20-day average based on closing stock prices on 20 October 2023.