Chevron Announces $53 Billion Deal to Acquire Rival Hess
Chevron Corporation revealed its plans to acquire rival oil company Hess Corporation in a significant consolidation deal.
The $53 billion transaction, combined with the assumption of debt, marks yet another instance of cash-rich oil giants seizing the opportunity to enhance their assets and returns amid high oil prices and substantial profits.
Although these corporations face mounting pressure to allocate more resources to renewable energy initiatives, they are capitalizing on the current market conditions to strengthen their positions.
The proposed deal provides Chevron with increased access to US shale production within Texas’ Permian Basin, a sector in which Chevron has long been a prominent player. Additionally, Hess Corporation boasts substantial oil assets in Guyana, offering Chevron the potential for significant production growth over the next decade.
Chevron’s Chairman and CEO, Mike Wirth, emphasized the strategic benefits of the merger, asserting that it would fortify Chevron’s long-term performance and enhance its portfolio by adding world-class assets.
Notably, Wirth highlighted the alignment between Chevron and Hess regarding shared values and cultures, including their commitment to “lowering carbon.” Nevertheless, environmental advocates continue to criticize oil companies for their sluggish transition to renewable energy alternatives.
The acquisition of Hess is expected to bolster Chevron’s free cash flow, enabling the company to allocate more resources to share repurchases in the long term. Chevron plans to increase its annual stock buybacks by $2.5 billion to reach $20 billion, a move that has sparked criticism from those who argue that oil companies should prioritize easing consumer fuel costs or investing more substantially in the energy transition.
Surging profits have spurred a wave of consolidation in the oil industry, with ExxonMobil announcing a $60 billion deal to acquire Pioneer, a shale company that could more than double Exxon’s operations in the Permian Basin if approved. Both Chevron and ExxonMobil may face antitrust scrutiny as the Biden administration has displayed a more proactive stance on challenging corporate power based on antitrust concerns.
In response to the announcement, Chevron’s shares dipped 3% in premarket trading, while Hess’ shares experienced a slight uptick. Since the outset of 2022, before the substantial increase in oil prices driven by Russia’s invasion of Ukraine, Hess shares have surged by 120%, while Chevron shares have risen by 42%.
Chevron is no stranger to large-scale acquisitions, having purchased Anadarko Petroleum in 2019 to bolster its shale business. John Hess, CEO of Hess Corporation, expressed confidence in the benefits of the combined entity, which is expected to deliver value to shareholders and generate cost synergies of approximately $1 billion. The fate of the iconic Hess brand post-merger remains undisclosed, as the companies have not yet made any formal announcements regarding its continuity.
