Chevron’s (CVX) Stock Fell 3.40% on the $53Bn Hess Acquisition

The Chevron Corporation (NYSE: CVX) stock price fell 3.40% after announcing plans to acquire US oil and gas producer Hess Corporation in a $53bn all-stock deal. The move demonstrates Chevron’s commitment to fossil fuels as it bets that demand will remain high for such fuels despite the push to embrace renewable energy sources.

The deal assigns a value of $53 billion to Hess's equity, and its enterprise value, including debt, reaches $60 billion. This development reflects a broader trend in the US energy sector, where companies are consolidating to leverage the profits generated during the energy crisis.

Chevron's shares experienced a 3.4% decline following the announcement. In contrast, Hess's share price saw a 0.6% rise, resulting in a market capitalisation of nearly $50.1 billion. Notably, the proposed deal offers a 10.3% premium over the average share price of Hess over the past 20 days.

US energy giants, including Chevron and ExxonMobil, are confident in the long-term viability of oil and gas demand. They aim to expand their presence in the US shale sector and emerging markets such as Guyana. In contrast, some European energy majors, such as BP and TotalEnergies, are accelerating their investments in renewable energy.

The acquisition of Hess is expected to boost Chevron's oil and gas production by over 10%. Chevron's CEO, Mike Wirth, has defended its commitment to increasing oil and gas output, asserting that they are “not selling an evil product. We’re selling a good product.” 

He challenged forecasts that predict a peak in fossil fuel demand by the end of the decade, emphasising the need to address real-world energy demands.

The deal includes Hess's 30% stake in a significant offshore oil exploration project in Guyana and a shale project in Bakken, North Dakota. It also positions Chevron to enhance its portfolio and add world-class assets, according to Wirth.

The acquisition is anticipated to close in the first half of next year and will involve Chevron issuing approximately 317 million shares. The companies estimate cost savings of about $1 billion within a year of closing. Chevron also plans to increase asset sales, generating $10 billion to $15 billion in proceeds through 2028, pre-tax.

Chevron stock price. 

The Chevron (CVX) stock price fell 3.40% to trade at $161.15, from Friday’s closing price of $166.83.