Multi-billion-dollar deals are continuing to pile up at an extraordinary pace as 2023 draws closer to its end, this time with Chevron’s all-stock agreement Oct. 23 to acquire Hess Corp., valued at $60 billion including debt. The transaction, expected to close in 1H24, falls just a bit short of the recent high-water mark set by ExxonMobil Oct. 11 with its $64.5 billion deal for Pioneer Natural Resources. It also marks a closing chapter for a company that has been led by the Hess family for 90 years, although CEO John Hess will join the supermajor’s board of directors. The transaction is the second multi-billion-dollar deal of the year for Chevron, which closed its $7.6 billion acquisition of PDC Energy in August.
Hess had more than 5.5 million net acres across the U.S., Guyana, Malaysia, Canada and Suriname as of YE22, according to its 2022 annual report, and proved reserves of 1.26 Bboe (80% liquids). The company produced 387,000 boe/d (74% liquids) in Q2, compared to an average of 344,000 boe/d (72% liquids) in 2022. In comparison, Chevron had YE22 proved reserves of 11.2 Bboe and Q2 production of 2.96 MMboe/d, and the PDC deal added 1.1 Bboe of YE22 proved reserves and 244,000 boe/d of Q1 production.
Currently, Hess’ largest productive asset is its Bakken Shale position in North Dakota, which will be a new play for Chevron. It has 465,000 net acres in the play and produced more than 181,000 boe/d (81% liquids) in Q2. The Bakken is also home to Hess’ integrated midstream assets, which consists of nearly 2,200 miles of pipeline and processing, storage and terminal facilities. In Q2, Hess Midstream – a 50:50 JV between Hess and Global Infrastructure Partners – had gas processing throughput of 358 MMcf/d and gas gathering of 369 MMcf/d. Water gathering volumes were 87,000 bbl/d, while crude terminaling throughput was 108,000 bo/d and crude oil gathering was 94,000 bo/d.
“We’re going to rely very heavily on the good people at Hess that have been involved in the Bakken for many, many years. As we added the DJ Basin to our portfolio, we were pleasantly surprised,” Chevron CEO Mike Wirth said on a conference call, referring to the supermajor’s 2020 acquisition of DJ driller Noble Energy. “And I’m certain that the same will be true as we come together with Hess and see what they’ve been doing in the Bakken.” Wirth added that Chevron estimates the Bakken acreage to hold at least 15 years of inventory at a four-rig drilling pace, calling it “a very attractive asset that can deliver kind of plateau production, strong cash flow for many, many years to come and has that technology upside.”
Arguably Hess’ most important asset for the future, however, is its 30% stake in the ExxonMobil-operated Stabroek block off Guyana, which holds more than 11 Bboe of discovered recoverable resources with billions of barrels of remaining exploration potential. Hess’ net production from the block was 110,000 bo/d in Q2, almost double the 67,000 bo/d from 2Q22. Exxon and its partners are targeting gross production capacity of over 1.2 MMbo/d by YE27, which would amount to more than 360,000 bo/d net to Hess’ stake.
Stabroek expected to produce 360,000 bo/d net to Hess’ 30% stake by 2027.
Chevron will pick up additional complementary licenses in the U.S. Gulf of Mexico, which are producing 30,000 boe/d (75% liquids), and Malaysian assets that are producing 65,000 boe/d (95% gas). Hess also holds stakes in two exploration licenses off Suriname – Chevron is already a partner on the Shell-operated Block 42 – and two licenses in Canada’s offshore Orphan Basin that are operated by BP.
Chevron will issue about 317 million common shares to complete the deal. The exchange ratio of 1.025 Chevron shares per Hess share represents a 10.3% premium over Hess’ 20-day average closing price as of Oct. 20, the supermajor said. Hess holds nearly $8.5 billion of short- and long-term debt as of Q2, which will bring Chevron’s pro forma Q2 total to almost $30.0 billion. The supermajor said it expects to achieve run-rate synergies of about $1 billion per year within a year of closing, and it will run a combined capex program of $19-22 billion. In addition, the company is targeting $10-15 billion in assets sales through 2028.
John Hess noted on the conference call that his company’s total shareholder returns over the last five years have been the highest in the energy industry and that it was the second-best performer in the S&P 500 last year with a 94% price stock increase. “So basically, we’re not only locking in and preserving the value we created over the last several years, but we still participate in the upside that you’re talking about,” he said of the all-stock deal structure. “On top of that, we get a much higher dividend instead of a $1.75 a share. As a shareholder, you get $6 and then next year you get $6.50, and you have an ongoing strong share repurchase program.”
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