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By Alexander Fabino
Reporter, Economy & Finance
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In what could be noted as more consolidation within the energy sector, oil giant Chevron Corporation on Monday disclosed its definitive agreement to acquire Hess Corporation in an all-stock transaction valued at $53 billion, or $171 per share.
Under the agreement, each Hess share will be exchanged for 1,025 shares of Chevron. The anticipated closure of the acquisition is in the first half of 2024, subject to Hess shareholder approval and regulatory green lights.
The crux of the acquisition is the enhancement and diversification of Chevron's portfolio, with a special mention of the Stabroek block in Guyana and Hess's Bakken assets. John Hess, CEO of Hess Corp, is slated to join Chevron's board post-acquisition.
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"I believe our strategic combination creates a company that is stronger in every respect, with the leadership, asset portfolio and financial resources to lead us through the energy transition and deliver significant shareholder value for years to come," Hess said in a press release.
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For investors, the transaction hints at an arbitrage strategy. Given the buyout price of $171 per share, against Hess' current trading range hovering around $163, there is a near $8 upside per share for potential investors upon the deal's completion.
The acquisition also propels Chevron into a strategic partnership in Guyana's oilfields, alongside Exxon Mobil Corp, and bolsters its shale assets in North Dakota. Hess' stake in Guyana is particularly lucrative, with over 11 billion barrels of oil equivalent discovered as a recoverable resource.
Besides enriching Chevron's asset base, the merger is set to augment the firm's free cash flow, enabling higher shareholder returns. Post-closure, Chevron plans to ramp up its share repurchases by $2.5 billion, topping its annual range to $20 billion, contingent on robust oil prices posting a record profit in 2022.
The deal also carries a broader implication in the energy realm, mirroring the ongoing consolidation trend. Earlier this month, Exxon Mobil confirmed its acquisition of Pioneer Natural Resources for $64.5 billion, underscoring the vigorous competition and the financial muscle flexing among the top U.S. energy conglomerates.
Additionally, the merger comes at a time of surging oil prices and profits for energy behemoths, juxtaposed with a growing clamor for renewable energy investments. Critics argue that the hefty capital funneled into share buybacks could be channeled towards easing consumer burden or accelerating the energy transition.
The acquisition, approved by both companies' boards, sees around $1 billion in cost savings pre-tax within a year post-closure. It also propels Chevron into a competitive stance against Exxon, especially in the burgeoning Guyana oilfields, set to yield about 1.2 million barrels of oil daily by 2027.
Disclaimer: The content provided in this article is for informational purposes only. Neither Newsweek nor the authors engaged in the production of this piece are licensed financial advisers. The information presented herein is not intended as financial advice. We strongly recommend consulting a professional financial adviser before making any investment decisions.
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