Chevron announced on Monday its acquisition of Hess for a whopping $53 billion in stock. This massive merger marks the second major consolidation in the US oil sector in recent weeks, with Exxon Mobil’s $60 billion bid for Pioneer Natural Resources earlier this month being the first.
This acquisition intensifies the rivalry between Chevron, the second-largest oil and gas producer in the United States, and Exxon Mobil. It positions them in direct competition as they both seek to expand their drilling operations in the emerging oil-producing region of Guyana, reported CNBC.
Chevron’s strategic move underscores its commitment to continue investing in fossil fuels. This decision comes as global oil demand remains robust, and major oil producers are actively pursuing acquisitions to replenish their reserves following years of limited investment.
Guyana has emerged as a significant oil producer in recent years, following substantial discoveries, positioning it as one of the prominent players in Latin America, trailing only Brazil and Mexico.
Read more: The Case for an Exxon-Chevron Merger
Currently, Exxon, in partnership with Hess and China’s CNOOC, are the exclusive active oil producers in Guyana. Their combined projects are projected to achieve a substantial output of 1.2 million barrels per day by 2027.
Upon the completion of this deal, John Hess, the CEO of Hess Corp, is set to join Chevron’s board of directors. This merger is anticipated to drive higher production and free cash flow for an extended period, surpassing Chevron’s current five-year growth expectations, according to statements from both companies.
Furthermore, Chevron has expressed its confidence in the future of energy prices and its cash generation by revealing plans to increase its share repurchase program by $2.5 billion, pushing it to the top end of the $20 billion annual range.
Goldman Sachs served as the lead adviser to Hess, while Morgan Stanley played the lead advisory role for Chevron in this substantial acquisition, per CNBC.
The deal is slated for closure in the first half of 2024, and its impact on the global oil industry is eagerly anticipated.