Chevron Corp. has agreed to acquire Hess Corp. in an all-stock transaction valued at $53 billion, further diversifying the energy company’s portfolio with the addition of Stabroek block interests offshore Guyana and adding Bakken acreage to the company’s existing US shale position.
The deal is expected to increase Chevron’s estimated 5-year production and free cash flow growth rates and extend such growth into the next decade, the company said in a release Oct. 23.
This increased production growth and cash flow accretion—aided by $1 billion in expected run-rate synergies within a year of the deal’s closing—appears as motivation for the deal, TD Cowen analysts said in a note Monday.
“Hess' portfolio consists of non-op assets in Guyana, 465,000 net acres in the Bakken [with] 190,000 boe/d of production, 30,000 boe/d of production in the US Gulf of Mexico, and about 60,000 boe/d of gas production in the North Malay Basin [Southeast Asia]. There is minimal operational overlap outside of the GOM [Gulf of Mexico] and should attract little FTC [Federal Trade Commission] pushback,” the analysts said.
Production growth
Hess’s portfolio was expected to grow production by an average 12% over the next 5 years “with a portfolio break-even targeted below $50/bbl Brent by 2027,” the analysts continued. Growth is largely attributed to its share in the ExxonMobil Guyana asset where Liza 1 and Liza 2 are on production, and where Payara, the third development, is undergoing startup operations (OGJ Online, Feb. 14, 2022; Apr. 19, 2023).
In July, as part of its quarterly earnings report, Hess revised upward its full year 2023 net production guidance to 385,000-390,000 boe/d based largely on operational performance and expected startup of Payara offshore Guyana (OGJ Online, Aug. 7, 2023). Hess said net production for Guyana for full year 2023 is expected to be 115,000 b/d of oil, up from previous guidance of 105,000-110,000 b/d.
In the same report, the company noted a discovery in the Gulf of Mexico through its 100%-operated Pickerel-1 exploration well in Mississippi Canyon Block 727 that it planned to tie back to its Tubular Bells production platform with first oil expected in mid-2024.
With the deal, Chevron will acquire 30% ownership in the ExxonMobil-operated Stabroek block. The 6.6-million acre block lies 120 miles offshore Guyana, holds more than 11 billion boe discovered recoverable resource, a strong production growth outlook, and potential exploration upside.
Based on the discoveries on the block to date, six floating production, storage, and offloading (FPSO) vessels with gross production capacity of more than 1.2 million gross b/d of oil are expected to be online by end-2027 with potential for up to 10 FPSOs to develop the discovered resources on the block.
Hess also holds interest in the 3.3-million-acre Kaieteur block, which lies 155 miles offshore Guyana, adjacent to Stabroek block.
The combine’s capital expenditures budget is expected to be $19-22 billion, and Chevron expects to increase asset sales and generate $10-15 billion in before-tax proceeds through 2028.
“If we’re going to remain capital-disciplined […] we need to invest in the best and so that’s what we’ll do,” Chevron chairman and chief executive officer Mike Wirth said on a conference call with analysts. “There will be some assets we have that, in the company 2 years ago or 4 years ago, would’ve attracted capital. But with a stronger portfolio, [we] are just going to find that other assets are preferentially going to draw that capital.”
The deal is expected to close in first-half 2024 subject to Hess shareholder approval, regulatory approvals, and other customary closing conditions. Hess chief executive officer John Hess is expected to join Chevron’s board of directors.
Under the terms of the agreement, Hess shareholders will receive 1.0250 shares of Chevron for each Hess share. The total enterprise value, including debt, of the transaction is $60 billion. In aggregate, Chevron will issue about 317 million shares of common stock.
