Chevron has announced plans to buy the oil producer Hess Corporation in a $53bn (£44bn) deal, becoming the second American energy giant to place a vast bet on fossil fuel production this month.
Chevron recently announced a stock-based acquisition that would expand its operations in the oil-rich country of Guyana. This news came shortly after Exxon Mobil’s announcement of their $59.5 billion purchase of Pioneer Natural Resources, one of the biggest oil companies in the world.
Large purchases like these have led to increased hopes for more merging in the field. According to Michael Wirth, the CEO of Chevron, there are currently too many CEOs for each barrel of oil equivalent, making consolidation a logical step. Wirth also mentioned that the global market can anticipate additional agreements.
In recent times, Guyana has emerged as a top producer of oil, thanks to significant findings made by Exxon, its partner Hess, and China’s CNOOC. These three entities currently extract 400,000 barrels of crude per day from two offshore vessels and have expressed plans to potentially develop 10 additional offshore projects.
Chevron is offering $171 per share to acquire Hess, representing a 4.9% premium on the current closing price of the stock. John Hess, the CEO of Hess, is anticipated to become a member of Chevron’s board of directors after the acquisition is finalized in the first half of 2024.
The two merged companies stated that they anticipate a quicker and longer period of growth in production and free cashflow compared to Chevron’s present five-year plan.
Pierre Breber, the chief financial officer and vice-president of Chevron, expressed that the company plans to increase shareholder returns through a combination of higher dividend per share growth and share repurchases. This decision is based on their increased confidence in long-term cash generation projections.
Although the Biden administration has been pushing for a faster transition to renewable energy due to the urgency of the climate crisis, this purchase highlights the belief of major American oil companies that there will not be a major decrease in fossil fuel production in the near future.
According to Wirth, this merger allows Chevron to improve its future results and bolster its already exceptional collection of assets with the addition of top-quality resources.
The speaker stated that both businesses are committed to achieving “increased profits and reduced carbon emissions”. However, activists have raised concerns about these agreements, wondering how the merger of oil companies will contribute to meeting global climate goals.
Cassidy DiPaola, the manager of the campaign at Fossil Free Media, expressed that the takeover is another alarming indication that the fossil fuel industry is not planning to decrease their activities, despite the urgent warnings from climate experts.
The agreement between Chevron and Hess has received unanimous approval from both companies’ boards, but still needs to be reviewed by regulators. In addition, Hess shareholders must also give their approval for the deal.
During the initial trading session in New York, Chevron’s stocks decreased by 2.4%, while Hess’ stocks increased by 0.8%.
This article was contributed by Reuters.