Chevron buys Hess Corp. for $53 billion and it’s not even the biggest acquisition in the energy sector this month as major producers take the initiative as oil prices soar.
Crude prices rose sharply in early 2022 with Russia’s invasion of Ukraine and are hovering around $90 a barrel after rising another 9% this year, meaning big drillers are flush with cash and looking places to invest tons of money.
LEARN MORE: Exxon Mobil to buy Pioneer Natural for $59.5 billion, doubling down on fossil fuels as energy prices rise
The Chevron-Hess deal comes less than two weeks after Exxon Mobil announced plans to acquire Pioneer Natural Resources for about $60 billion.
Upward pressure on oil prices is being exerted on several fronts, including the war in Ukraine. Oil markets are being strained by oil production cuts from Saudi Arabia and Russia, and now a war between Israel and Hamas risks sparking a wider conflict in the Middle East. Even if the attacks on Israel do not disrupt global oil supplies, according to an analysis by the U.S. Energy Information Administration, “they increase the risk of oil supply disruptions and higher prices.” petrol “.
Chevron said Monday that the Hess acquisition adds a major oil field in Guyana as well as shale properties in the Bakken Formation in North Dakota. Guyana is a South American country of 791,000 inhabitants which is on track to become the world’s fourth largest producer of offshore oil, ahead of Qatar, the United States, Mexico and Norway. It has become a major producer in recent years, with oil giants including Exxon Mobil, China’s CNOOC and Hess competing fiercely for the highly lucrative oil fields of northern South America.
“This combination is consistent with our goal of safely generating higher yields and reduced carbon emissions,” Mike Wirth, Chevron’s chairman and CEO, said in prepared remarks. “Additionally, Hess increases Chevron’s estimated production and free cash flow growth rates over the next five years, and is expected to expand our growth profile over the next decade, supporting our plans to increase production. our dividend growth and share repurchases, among the best of our peers. »
Chevron pays Hess with stock. Hess shareholders will receive 1.0250 Chevron shares for each Hess share. Including debt, Chevron values the deal at $60 billion.
And even as alarm rises over climate change after a summer of record temperatures, rising energy prices have led to more exploration and drilling, as well as big gains for investors .
LEARN MORE: US oil production hits record high, at odds with efforts to combat climate change
A number of acquisitions were made in U.S. shale fields and a new round of consolidation in the energy sector began during the pandemic as large producers sought to cut costs. In the summer of 2020, Chevron announced the purchase of Noble Energy for $5 billion. Chevron struck the deal as crude prices were down more than 30% amid the coronavirus pandemic. That same year, ConocoPhillips bought shale producer Concho Resources in an all-stock deal valued at $9.7 billion.
Britain last month gave the green light to 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 wants to avoid catastrophic climate change.
Chevron said the deal would help increase the amount of cash returned to shareholders. The company expects that in January it will be able to recommend an 8% increase to its first-quarter dividend, to $1.63. This would still require board approval. The company also plans to increase its share repurchases by $2.5 billion to reach the upper end of its forecast range of $20 billion per year once the deal closes.
The boards of Chevron and Hess approved the deal announced Monday after six months of negotiations and is expected to close in the first half of next year. It must still be approved by Hess shareholders. John Hess, the company’s CEO, is expected to join Chevron’s board of directors. His family owns a large part of Hess.
Shares of San, Ramon, Calif.-based Chevron Corp. fell more than 2% before the opening bell Monday. Shares of New York-based Hess Corp. fell slightly.
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