NEW YORK 鈥� Chevron is buying Hess Corp. for $53 billion and it鈥檚 not even the biggest acquisition in the energy sector this month as major producers seize the initiative while oil prices surge.
Crude prices rose sharply in early 2022 with Russia's invasion of Ukraine and are hovering around $90 per barrel after ticking another 9% higher this year. That has made big drillers cash rich and they are looking for places to invest.
The Chevron-Hess deal comes after Exxon Mobil said that it would acquire Pioneer Natural Resources for about $60 billion.
Upward pressure on oil prices are being applied from a number of fronts including the war in Ukraine. Oil markets are being stretched by , and now, a war between Israel and Hamas of igniting a broader conflict in the Middle East. While attacks on Israel do not disrupt global oil supply, according to an analysis by the U.S Energy Information Administration, 鈥渢hey raise the potential for oil supply disruptions and higher oil prices.鈥�
Chevron said Monday that the acquisition of Hess adds a major oil field in Guyana as well as shale properties in the in North Dakota. is a South American country of 791,000 people that is poised to become the world鈥檚 fourth-largest offshore oil producer, placing it ahead of Qatar, the United States, Mexico and Norway. It in recent years with oil giants, including Exxon Mobil, China鈥檚 CNOOC, and also Hess, squared off in a heated competition for highly lucrative oil fields in northern South America.
鈥淭his combination is aligned with our objective to safely deliver higher returns and lower carbon,鈥� Chevron Chairman and CEO Mike Wirth said in prepared remarks. 鈥淚n addition, Hess increases Chevron鈥檚 estimated production and free cash flow growth rates over the next five years, and is expected to extend our growth profile into the next decade supporting our plans to increase our peer-leading dividend growth and share repurchases.鈥�
Chevron is paying for Hess with stock. Hess shareholders will receive 1.0250 shares of Chevron for each Hess share. Including debt, Chevron valued the deal at $60 billion.
And even with alarms being raised over climate change after a , elevated energy prices have , and big payouts for investors.
There have been a number of acquisitions focused on U.S. shale fields and another round of consolidation in the energy sector began during the pandemic as big producers sought to cut costs. In the summer of 2020, Chevron announced that it was buying for $5 billion. Chevron made the deal when crude prices were down more than 30% in the midst of the coronavirus pandemic. That same year, shale producer Concho Resources in an all-stock deal valued at $9.7 billion.
Last month gave the go-ahead for a major oil and gas project in the North Sea, ignoring warnings from scientists and the United Nations that countries must stop developing new fossil fuel resources if the world is to avoid catastrophic climate change.
Chevron said the deal will help to increase the amount of cash given back to shareholders. The company anticipates that in January it will be able to recommend boosting its first-quarter dividend by 8% to $1.63. This would still need board approval. The company also expects to increase stock buybacks by $2.5 billion to the top end of its guidance range of $20 billion per year once the transaction closes.
The boards of both Chevron and Hess have approved the deal announced Monday after six months of negotiations, and is targeted to close in the first half of next year. It still needs approval by Hess shareholders. John Hess, the company's CEO, is expected to join Chevron鈥檚 board. His family owns a large chunk of Hess.
Shares of Chevron Corp., based in San, Ramon, California, fell 3.7% Monday. Shares of New York-based Hess Corp. ended down 1%.
Michelle Chapman, The Associated Press
