Chevron’s agreement to buy rival heralds another megamerger

Bengaluru — Chevron said on Monday it has agreed to buy US rival Hess for $53bn in stock, the second proposed megamerger among the biggest US oil players after ExxonMobil bid $60bn for Pioneer Natural Resources earlier in October.

The proposed deal puts Chevron, the number two US oil and gas producer, in direct competition with its bigger rival, Exxon, to develop drilling in nascent producer Guyana.

The deal also signals Chevron’s plans to continue boosting investments in fossil fuels as oil demand remains strong and big producers use acquisitions to replenish their inventory after years of underinvestment.

Chevron has offered 1.025 of its shares for each Hess share held, or $171 per share, implying a premium of about 4.9% to the stock’s last close. The total deal value is $60bn, including debt.

RBC analysts said they were surprised by the deal’s timing and had expected the company to bide its time after Exxon’s megadeal for Pioneer.

Guyana has become a major oil producer after huge discoveries in recent years, turning it into one of Latin America’s most prominent producers, only surpassed by Brazil and Mexico.

Exxon and partners Hess and China’s CNOOC are the only active oil producers in the country. Their projects are expected to reach 1.2-million barrels per day of output by 2027.

Hess CEO John Hess is expected to join Chevron’s board of directors once the deal closes in about the first half of 2024. The combined company is expected to grow production and free cash flow faster and for longer than Chevron’s current five-year guidance, the companies said.

Chevron said that after the completion of the deal it intends to increase its share repurchases programme by $2.5bn to the top of its $20bn annual range, in a sign of confidence in future energy prices and its cash generation.

Goldman Sachs was the lead adviser to Hess, while Morgan Stanley was the lead adviser to Chevron.

Reuters