Chevron to acquire Hess Corporation in all-stock deal worth $53bn

Chevron Corporation has inked a definitive agreement with Hess Corporation for an all-stock purchase valued at $53 billion, which translates to $171 per share. This evaluation is based on Chevron’s closing price on October 20, 2023. As per the transaction terms, every Hess shareholder will receive 1.0250 shares of Chevron for their Hess share, bringing the deal’s total enterprise value, inclusive of debt, to $60 billion.

Chevron Acquisition of Hess – Strategic Growth and Diversification:

The incorporation of Hess into Chevron’s operations enhances and diversifies its already substantial portfolio. One notable asset is the Stabroek block in Guyana, renowned for its industry-leading cash margins, low carbon intensity, and anticipated growth trajectory into the subsequent decade. Moreover, Hess’ Bakken assets will bolster Chevron’s existing U.S. shale holdings, specifically in the DJ and Permian basin operations.

Mike Wirth, Chevron’s Chairman and CEO, on Chevron acquisition of Hess, stated, “This combination positions Chevron to strengthen our long-term performance… delivering higher returns and lower carbon.”

Pierre Breber, Chevron’s CFO, added, “Building on our track record of successful transactions, the addition of Hess is expected to extend further Chevron’s free cash flow growth.”

John Hess, the CEO of Hess Corporation, shared his perspective on the merger: “This strategic combination brings together two strong companies… with the leadership, asset portfolio and financial resources to lead us through the energy transition and deliver significant shareholder value for years to come.”

Chevron, Hess Deal Benefits & Insights:

• Strategic Alignment: Key assets include a 30% ownership in Guyana’s Stabroek block with over 11 billion barrels of oil equivalent, Bakken’s 465,000 net acres, and the Gulf of Mexico assets. The Southeast Asia natural gas business is another source of consistent free cash flow.
• Financial Growth: This acquisition is projected to be accretive to Chevron’s cash flow per share by 2025, given the synergies and the start-up of Guyana’s fourth floating production storage and offloading (FPSO) vessel. Moreover, Chevron foresees an 8% dividend per share increase by January and plans a share repurchase augmentation by $2.5 billion.
• Cost Efficiency: The unified company expects a capital expenditure budget ranging from $19 to $22 billion. Anticipated asset sales post-acquisition could yield $10 to $15 billion in before-tax proceeds through 2028.

Transaction Particulars:

The all-stock deal will see Chevron issue around 317 million shares of common stock, contributing to the overall enterprise value of $60 billion. Both companies’ Boards of Directors have given their unanimous approval for this merger. The completion of Chevron acquisition of Hess, contingent on Hess shareholder approval, regulatory nods, and other typical closing conditions, is expected by the first half of 2024. The deal’s price showcases a 10.3% premium based on a 20-day average as of October 20, 2023.

Advisory Details:

On the financial advisory front, Chevron sought counsel from Morgan Stanley & Co. LLC and Evercore, with legal guidance from Paul, Weiss, Rifkind, Wharton & Garrison LLP. In contrast, Hess Corporation was advised financially by Goldman Sachs & Co. LLC and J.P. Morgan Securities LLC, with Wachtell, Lipton, Rosen & Katz providing legal consultancy.