In the second energy megadeal this month, Chevron, the second-largest U.S. oil giant, said Monday that it had agreed to acquire Hess, a medium-size rival, in an all-stock deal valued at $53 billion.
The deal marks a further consolidation of the energy industry, especially in the United States, where smaller companies appear to be taking advantage of relatively high oil prices to join forces with bigger players. The transaction follows Exxon Mobil’s $60 billion purchase of the shale driller Pioneer Natural Resources this month, another sign of confidence among large industry players in the future of fossil fuels even as policymakers promote cleaner energy sources.
Like Exxon’s acquisition of Pioneer, Chevron’s move shows that big oil companies want to invest closer to home amid rising political risks in Asia, the Middle East and Africa. In recent years, Chevron has increased its holdings in the Rocky Mountains and the Permian Basin straddling Texas and New Mexico.
“Besides the United States, South America is the region where Chevron is making its bet,” said Peter McNally, an energy analyst at Third Bridge, a research firm. He said the recent flurry of acquisitions reminded him of a wave of takeovers a quarter-century ago that produced Exxon Mobil and Chevron-Texaco. At that time, he said, the companies were looking to lower costs; today, the acquired companies offer large assets and specialized expertise to develop unconventional resources like shale.
The jewel of the deal is the acquisition of Hess’s investment in offshore Guyana, which, in partnership with Exxon Mobil, is producing 400,000 barrels a day, up from nothing four years ago. Output is expected to triple by 2027, with Guyana representing more than 1 percent of total global output.
Exxon, Hess and CNOOC, a smaller Chinese partner, have made more than 30 discoveries in Guyana, with more than 11 billion barrels in the largest Stabroek block alone.
Natural gas bubbles up with the oil, providing an opportunity in the local electricity market and the potential to export to Trinidad and Tobago to produce liquefied natural gas for European markets.
Exxon Mobil is the Guyana project’s operator and major investor, with Hess piggybacking on what has developed into one of the biggest cash machines in the oil business. Along with West Texas, Guyana is Exxon’s biggest investment to increase future production.
Chevron has a longstanding investment in Venezuela, which borders Guyana, producing potential synergies should the U.S. government further loosen the sanctions it has imposed on that country.
Chevron will also acquire Hess’s shale fields in North Dakota; offshore production in the Gulf of Mexico, where it made a major oil discovery this year; and a natural gas business in Southeast Asia.
In a news release, Chevron said the acquisition would diversify its portfolio. Hess would add about 10 percent to Chevron’s overall oil and gas production of about three million barrels a day.
Mike Wirth, Chevron’s chairman and chief executive, said in a statement that the deal enhanced the company’s operations “by adding world-class assets.”
Pierre Breber, Chevron’s chief financial officer, said, “The addition of Hess is expected to extend further Chevron’s free cash flow growth.”
“With greater confidence in projected long-term cash generation,” he added, “Chevron intends to return more cash to shareholders” in the form of dividends and higher share repurchases.
John Hess, the chief executive of Hess, is expected to join Chevron’s board. He and his family will be big winners from the transaction.
On a conference call with Mr. Wirth, Mr. Hess recalled what he said was his company’s “long, proud history,” which began about 90 years ago with his father’s delivering fuel oil during the Depression.
Mr. Hess portrayed the merger as combining his company’s growth prospects, especially in Guyana, with Chevron’s broader reach, financial strength and ability to pay much bigger dividends.
In a note to clients on Monday, Biraj Borkhataria, an analyst at RBC Capital Markets, said it was surprising that Chevron had struck a big-ticket deal when Exxon, the company’s main rival, appeared out of the hunt because of its multibillion-dollar Pioneer purchase. He figured that Chevron “could bide its time.”
Mr. Borkhataria said Hess would give Chevron “a stronger, more diversified portfolio, which should bode well for shareholders over the long term; but in the near term, the news could weigh on the shares.”
Chevron shares were down about 2 percent on Monday morning.
A Bernstein Research note on Monday morning said the firm saw “little risk” in regulatory challenges, although “an activist contesting the deal is possible.” The research note added, “A counter deal is possible.”
Environmentalists were critical of the deal, as they had been of Exxon’s acquisition of Pioneer. “Chevron’s acquisition of Hess this week is yet another concerning sign that the fossil fuel industry has no intention of slowing down,” said Cassidy DiPaola, campaign manager for Fossil Free Media. “Deals like this lock us into greater fossil fuel dependency and greenhouse gas emissions for decades to come.”
Chevron, like Exxon, says it is building new abilities to capture carbon dioxide and bury greenhouse gases in the ground or recycle them.
The Chevron-Hess deal is the latest in a series of mergers and acquisitions that are changing the industry. Occidental Petroleum acquired Anadarko Petroleum four years ago for $40 billion. Pioneer spent more than $10 billion in recent years to buy Parsley Energy and DoublePoint Energy in 2021.