Chevron to Buy Hess for $53 Billion in Stock. Oil M&A Is Booming.

The deal values Hess shares at $171 each, based on Chevron’s closing price on Friday. The deal is valued at $53 billion, or $60 billion when including debt.

Hess shares were up slightly at $163.04. Chevron shares were falling 2.1% to $163.38. 

The acquisition is the latest sign of consolidation in the oil-and-gas industry. Earlier this month, Exxon Mobil (XOM) confirmed a deal to buy Pioneer Natural Resources (PXD) for $64.5 billion including debt in an all-stock transaction. Both Exxon and Chevron have also made smaller acquisitions this year, including Chevron’s $6.3 billion purchase of Colorado producer PDC Energy.

The flurry of deals is reminiscent of the creation of the supermajor oil companies that began 25 years ago but the companies being acquired today have more concentrated asset bases and expertise in specific resources, said Peter McNally, an energy expert at Third Bridge.

Hess has shale holdings in the U.S. but most of its assets are overseas—including a 30% stake in a consortium focused on offshore projects in Guyana, where it works with Exxon.

“We were surprised by the deal given Exxon operates Hess’s largest asset (Guyana ~75% of total company value), which will continue to be one of Chevron’s largest assets going forward. Further, we believed Chevron would buy another company with more contiguous assets to their existing positions,” Truist analyst Neal Dingmann wrote in a research note.

Chevron said that alongside the deal it expects to recommend an 8% increase to its first-quarter dividend per share to $1.63. It also intends to increase share repurchases by $2.5 billion to the top end of its guidance range of $20 billion a year, if oil prices remain strong following a record profit in 2022.

“Building on our track record of successful transactions, the addition of Hess is expected to extend further Chevron’s free cash flow growth,” said Chevron Chief Financial Officer Pierre Breber.

The deal has been approved by the boards of both companies and is expected to close in the first half of 2024. The combination is expected to produce $1 billion in cost savings before taxes within a year of closing.

Chevron said it expects to increase asset sales and generate between $10 billion and $15 billion in proceeds before tax in the period through 2028.

Attention is now set to turn to which other energy companies could become targets, although Exxon and Chevron might have temporarily exhausted their ability for megadeals such as targeting major European oil companies like
BP
(BP) or
TotalEnergies
(TTE).

That also means larger independent U.S. energy companies such as
Devon Energy
(DVN) and
Diamondback Energy
(FANG) are likely off the table, according to Joseph Sykora, equity analyst at Aptus Capital Advisors. However, smaller independents should continue to be targets, especially those with a heay presence in the Permian Basin such as
SM Energy
(SM) and
Callon Petroleum
(CPE), he said.

Write to Adam Clark at [email protected]