Chevron agreed to purchase Hess for $53 billion in an all-shares deal, as the American oil giant doubles down on fossil energy.
This is the second major oil and gas acquisition this month after ExxonMobil acquired Pioneer for $60 Billion.
Chevron, based in California, said that the deal would improve its long-term prospects because it added “world-class” assets. This includes the “extraordinary Stabroek region off the coasts of Guyana – the largest oil discovery of the last decade. Hess holds a 30% stake in Exxon fields that are estimated to contain more than 11 billion gallons of oil. Hess has also significant fracking assets, including in America’s Bakken Shale region in North Dakota. It also has interests in the Gulf of Mexico as well as Southeast Asia.
Mike Wirth, CEO of Chevron and John Hess who will join Chevron’s board after the takeover
Mike Wirth, Chevron’s CEO, said that his company believes “the future is lower-carbon”. He also stated that they are “committed” to building a system of lower-carbon energy. He told CNBC, however: “We must operate in a world where oil and gas are still needed by responsible producers.”
Mark van Baal of Follow This, a shareholder activist environmental movement, has accused Chevron “of betting on the failure” of the Paris Climate Agreement, which requires that fossil fuel use decline rapidly in this decade.
Chevron is the second largest international oil company not owned by a government, with a value of more than $300 billion. It reported a net profit of $35.5 billion for 2022. Hess was founded by Leon Hess in 1933. Hess is worth about $50 billion. He reported $2 billion. Hess began as a fuel oil delivery company with a 19-year-old driver. John Hess has been the CEO of the company since 1995. The family is still the largest shareholder, with a tenth share. Hess will join the Chevron Board at age 69.
According to London Stock Exchange analysts the deal is the second biggest announced in any sector worldwide this year, and brings oil and gas mergers up to $254 billion – the highest total year-to date since 2014.
Biraj Borkhataria is an analyst with RBC Capital Markets. He said that there was “an increasing realization” of the fact that oil and natural gas prices could remain high for a while, due to a lack in investment.
Analysts, including RBC, have previously noted that there could be more mergers to come because companies are sitting on healthy cash reserves thanks to recent high prices.
Borkhataria, however, suggested that European oil companies might be less capable of executing such deals because “US majors are trading at a premium compared to the majority of the sector”. He said that weaker valuations of European companies make it “much harder to execute accretive M&A using equity” and that there is a question about their “social license to execute large scale M&A”, considering their emission reduction targets.
BP was valued at PS90billion and had been mentioned as a possible takeover target by its biggest American rivals. On Monday, its shares dropped by 2.4 percent, or 13 1/4p to 532 1/4p. This prospect seems less likely, now that Exxon and Chevron have been busy with large deals.
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