Chevron Corporation announced today it has entered into a definitive agreement with Hess Corporation to acquire all of the outstanding shares of Hess in an all-stock transaction valued at $53 billion (or $171 per share based on Chevron’s closing price on October 20, 2023). And under the terms of the agreement, Hess shareholders will receive 1.0250 shares of Chevron for each Hess share. The transaction’s total enterprise value, including debt, is $60 billion.
This deal will upgrade and diversify Chevron’s already advantaged portfolio. For example, the Stabroek block in Guyana is an extraordinary asset with industry-leading cash margins and low carbon intensity that is expected to deliver production growth into the next decade. Hess’ Bakken assets also add another leading U.S. shale position to Chevron’s DJ and Permian basin operations and further strengthen domestic energy security. Plus, the combined company is expected to grow production and free cash flow faster and for longer than Chevron’s current five-year guidance. In addition, John Hess is expected to join Chevron’s Board of Directors.
Deal Benefits
— Guyana – 30% ownership in more than 11 billion barrels of oil equivalent discovered recoverable resource with high cash margins per barrel, strong production growth outlook, and potential exploration upside.
— Bakken – 465,000 net acres of high-quality and long-duration inventory supported by the integrated assets of Hess Midstream.
— Complementary Gulf of Mexico assets and steady free cash flow from Southeast Asia natural gas business.
— Expected to be accretive to cash flow per share in 2025 after achieving synergies and start-up of the fourth floating production storage and offloading (FPSO) vessel in Guyana.
— Increases Chevron’s estimated five-year production and free cash flow growth rates and expected to extend such growth into the next decade.
— In January, Chevron expects to recommend an increase to its first quarter dividend per share of 8% to $1.63, which will be subject to the approval of the Chevron Board of Directors.
— Post closing, Chevron plans to increase share repurchases by $2.5 billion to the top end of its guidance range of $20 billion per year in a continued upside oil price scenario.
— The combined company’s capital expenditures budget is expected to be between $19 and $22 billion.
— With a stronger portfolio after closing, Chevron expects to increase asset sales and generate $10 to $15 billion in before-tax proceeds through 2028.
— The transaction is expected to achieve run-rate cost synergies around $1 billion before tax within a year of closing.
Deal Details
The deal consideration is structured with 100 percent stock utilizing Chevron’s equity. In aggregate – upon the closing of the deal – Chevron will issue approximately 317 million shares of common stock. Total enterprise value of $60 billion includes net debt and book value of non-controlling interest.
The deal has been unanimously approved by the Boards of Directors of both companies and is expected to close in the first half of 2024. And the acquisition is subject to Hess shareholder approval. Plus, it is also subject to regulatory approvals and other customary closing conditions. The deal price represents a premium of 10.3% on a 20-day average based on closing stock prices on October 20, 2023.
KEY QUOTES:
“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.”
— Chevron Chairman and CEO Mike Wirth
“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, Chevron’s CFO
“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.”
— CEO John Hess
