Chevron Corporation 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 20 October 2023. 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.
The acquisition of Hess upgrades and diversifies Chevron’s portfolio. 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 add another leading US shale position to Chevron’s DJ and Permian basin operations and further strengthen domestic energy security.
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.
Transaction benefits include:
Strong strategic fit:
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, 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.
Accretive to cash flow per share and extends growth into 2030s:
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.
Increases cash returned to shareholders:
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 intends 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.
Capital and cost efficient:
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.
The acquisition consideration is structured with 100 percent stock utilizing Chevron’s equity. In aggregate, upon closing of the transaction, 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 transaction has been unanimously approved by the Boards of Directors of both companies and is expected to close in the first half of 2024. The acquisition is subject to Hess shareholder approval. It is also subject to regulatory approvals and other customary closing conditions.
The transaction price represents a premium of 10.3% on a 20-day average based on closing stock prices on 20 October 2023.