By
Darya Rudz
August 11th, 2023
After the transaction is finalized, Chevron plans to escalate share repurchases by $2.5 billion, reaching the upper limit of its annual guidance range of $20 billion.
Chevron Corporation, one of the leading global energy companies, has today announced its agreement to acquire an American oil production firm Hess for $53 billion. The deal is part of a strategic move by the company to strengthen and diversify its already robust portfolio.
According to an official announcement on Monday, the company will acquire all outstanding shares of Hess in an in-stock transaction at $171 per share based on Chevron’s closing price on Friday. In return, Hess shareholders will receive 1.0250 shares of Chevron for each Hess share.
Chevron to Finalize Hess Acquisition Next Year
The deal, pending regulatory approvals and customary closing conditions, is expected to be finalized in the first half of 2024. Additionally, Hess shareholders are expected to approve or reject the deal before it can be concluded.
Chevron’s chairman and CEO Mike Wirth said the acquisition would benefit both firms and strengthen their performance if completed.
“This combination positions Chevron to strengthen our long-term performance and enhance our advantaged portfolio by adding world-class assets. Importantly, our two companies have similar values and cultures, focusing 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.”
Potential Impact of Hess Acquisition
The acquisition is poised to generate considerable strategic benefits for Chevron, significantly bolstering its free cash flow growth.
The deal is also projected to achieve run-rate cost synergies of approximately $1 billion before tax within a year of the deal’s closure, ensuring a financially sound future for the company.
Furthermore, the deal would allow Chevron to gain a significant advantage in Guyana, Hess’s largest oil discovery unit, with a 30% ownership stake in more than 11 billion barrels of oil equivalent. The move will bring higher cash margins per barrel, ensuring a promising future for production.
Additionally, the acquisition includes Hess’s valuable assets in Bakken, which covers 465,000 net acres of high-quality inventory and is supported by the integrated assets of Hess Midstream.
Chevron said in its announcement that it anticipates an increase in its cash flow per share starting in 2025, along with a significant boost in its estimated five-year production and free cash flow growth rates, extending into the next decade.
According to the company, shareholders can look forward to an 8% increase in the company’s first-quarter dividend per share, reaching $1.63, pending approval from the Chevron Board of Directors.
Chevron Plans to Generate $15 Billion on Asset Sales
After the transaction is finalized, Chevron plans to escalate share repurchases by $2.5 billion, reaching the upper limit of its annual guidance range of $20 billion.
The company aims to manage its capital and costs efficiently, with a capital expenditure budget ranging from $19 to $22 billion.
Additionally, Chevron expects to increase asset sales, generating an estimated $10 to $15 billion in before-tax proceeds through 2028.
Hess CEO John Hess believes the acquisition will make both companies stronger.
“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,” said he.