A final agreement has been reached between Chevron Corporation (NYSE: CVX) and Hess Corporation (NYSE: HES) for Chevron to purchase all of Hess’s outstanding shares in an all-stock deal valued at $53 billion, or $171 per share based on Chevron’s closing price on October 20, 2023. Hess stockholders will receive 1.0250 shares of Chevron for each Hess share, as per the terms of the transaction. The acquisition has a total enterprise value of $60 billion, including debt.
Chevron’s highly advantageous portfolio has been enhanced and broadened with this acquisition. With its low carbon intensity and industry-leading cash margins, the Stabroek block in Guyana is a remarkable asset that is predicted to generate production growth for the next 10 years. Chevron’s DJ and Permian basin operations gain another strong U.S. shale position with the addition of Hess’ Bakken assets, bolstering domestic energy security even more. Production and free cash flow growth are anticipated to occur more quickly and sustainably in the merged business than in Chevron’s present five-year estimate. John Hess is also anticipated to become a member of the Chevron Board of Directors.
“This combination positions Chevron to strengthen our long-term performance and further enhance our advantaged portfolio by adding world-class assets. Importantly, our two companies have similar values and cultures, with a focus on operating safely and with integrity, attracting and developing the best people, making positive contributions to our communities and delivering higher returns and lower carbon.”
Mike Wirth, Chairman and CEO at Chevron.
“Building on our track record of successful transactions, the addition of Hess is expected to extend further Chevron’s free cash flow growth. With greater confidence in projected long-term cash generation, Chevron intends to return more cash to shareholders with higher dividend per share growth and higher share repurchases.”
Pierre Breber, CFO at Chevron.
“This strategic combination brings together two strong companies to create a premier integrated energy company. I am proud of our people and what we have achieved as a company, which has one of the industry’s best growth portfolios including Guyana, the world’s largest oil discovery in the last 10 years, and the Bakken shale, where we are a leading oil and gas producer. Chevron has a world-class diversified portfolio of assets and one of the industry’s strongest balance sheets and cash return profiles. 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.”
John Hess, CEO at Chevron.
Benefits of the Transaction
Excellent strategic fit:
- Guyana has a 30% stake in recoverable resources worth over 11 billion barrels of oil, with good cash margins per barrel, a promising production growth outlook, and room for exploration.
- Bakken: 465,000 net acres of premium, long-duration inventory backed by Hess Midstream’s integrated infrastructure.
- Complementary assets in the Gulf of Mexico and consistent free cash flow from the natural gas industry in Southeast Asia.
Enhances cash flow per share and sustains growth until the 2030s:
- After achieving synergies and starting up the fourth floating production, storage, and offloading (FPSO) vessel in Guyana, it is anticipated to be accretive to cash flow per share in 2025.
- Increases Chevron’s projected growth rates for free cash flow and production for the next five years, with plans to continue this growth into the next ten years.
Boosts cash returned to shareholders:
- Chevron plans to suggest raising its first-quarter dividend per share by 8% to $1.63 in January. Subject to approval of the Chevron Board of Directors.
- Following the closure, Chevron plans to increase share repurchases by $2.5 billion, reaching the upper end of its $20 billion annual guidance range in the event that oil prices continue to rise.
Capital and cost-effective:
- It is anticipated that the combined business will spend between $19 and $22 billion on capital projects.
- Chevron expects to grow asset sales and produce $10 to $15 billion in before-tax proceeds through 2028 with a stronger portfolio following completion.
- Within a year of closing, run-rate cost synergies of about $1 billion before taxes are anticipated from the purchase.
Details of the transaction
Chevron’s equity is used to arrange the acquisition transaction as 100% stock. Following the transaction’s completion, Chevron will issue about 317 million shares of common stock overall. Net debt and the book value of non-controlling interest are included in the $60 billion total enterprise value.
The Boards of Directors of both businesses have unanimously authorised the transaction, which is anticipated to be completed in the first half of 2024. Regulatory approvals and other normal closing requirements apply as well.
In terms of a 20-day average based on closing stock prices on October 20, 2023, the transaction price reflects a premium of 10.3%.
Press and Images sourced from Chevron.
