Business Strategy Chevron to Takeover Hess Corporation for 60 Billion Dollars

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Chevron has plans to acquire Hess Corporation in order to upgrade and diversify its portfolio. The deal will also give Chevron access to the Stabroek block in Guyana as well as Hess’ Bakken assets.

New York/USA – Chevron Corporation has entered into a definitive agreement with Hess Corporation to acquire all of the outstanding shares of Hess in an all-stock transaction valued at 53 billion dollars, or 171 dollar per share based on Chevron’s closing price on October 20, 2023. Under the terms of the agreement, Hess shareholders will receive 1.0250 shares of Chevron for each Hess share. The total enterprise value, including debt, of the transaction is 60 billion dollars.

The acquisition of Hess upgrades and diversifies Chevron’s already advantaged portfolio. The Stabroek block in Guyana is an extraordinary asset with industry leading cash margins and low carbon intensity that is expected to deliver production growth into the next decade. Hess’ Bakken assets add another leading U.S. shale position to Chevron’s DJ and Permian basin operations and further strengthen domestic energy security. The combined company is expected to grow production and free cash flow faster and for longer than Chevron’s current five-year guidance. In addition, John Hess is expected to join Chevron’s Board of Directors.

“This combination positions Chevron to strengthen our long-term performance and further enhance our advantaged portfolio by adding world-class assets,” said Chevron Chairman and CEO Mike Wirth. “Importantly, our two companies have similar values and cultures, with a focus on operating safely and with integrity, attracting and developing the best people, making positive contributions to our communities and delivering higher returns and lower carbon.”

“Building on our track record of successful transactions, the addition of Hess is expected to extend further Chevron’s free cash flow growth,” said Pierre Breber, Chevron’s CFO. “With greater confidence in projected long-term cash generation, Chevron intends to return more cash to shareholders with higher dividend per share growth and higher share repurchases.”

“This strategic combination brings together two strong companies to create a premier integrated energy company,” CEO John Hess said. “I am proud of our people and what we have achieved as a company, which has one of the industry’s best growth portfolios including Guyana, the world’s largest oil discovery in the last 10 years, and the Bakken shale, where we are a leading oil and gas producer. Chevron has a world-class diversified portfolio of assets and one of the industry’s strongest balance sheets and cash return profiles. I believe our strategic combination creates a company that is stronger in every respect, with the leadership, asset portfolio and financial resources to lead us through the energy transition and deliver significant shareholder value for years to come.”

Transaction Benefits

Strong strategic fit:

• Guyana – 30 % ownership in more than 11 billion barrels of oil equivalent discovered recoverable resource with high cash margins per barrel, strong production growth outlook and potential exploration upside.

• Bakken – 465,000 net acres of high-quality, long-duration inventory supported by the integrated assets of Hess Midstream.

• Complementary Gulf of Mexico assets and steady free cash flow from Southeast Asia natural gas business.

Accretive to cash flow per share and extends growth into 2030s:

• Expected to be accretive to cash flow per share in 2025 after achieving synergies and start-up of the fourth floating production storage and offloading (FPSO) vessel in Guyana.

• Increases Chevron’s estimated five-year production and free cash flow growth rates and expected to extend such growth into the next decade.

• Increase cash returned to shareholders:

• In January, Chevron expects to recommend an increase to its first quarter dividend per share of 8 % to 1.63 dollars, which will be subject to the approval of the Chevron Board of Directors.

• Post-closing, Chevron intends to increase share repurchases by 2.5 billion dollars to the top end of its guidance range of 20 billion dollars per year in a continued upside oil price scenario.

Capital and cost efficient:

• The combined company’s capital expenditures budget is expected to be between 19 and 22 billion dollars.

• With a stronger portfolio after closing, Chevron expects to increase asset sales and generate 10 to 15 billion dollars in before-tax proceeds through 2028.

• The transaction is expected to achieve run-rate cost synergies around 1 billion dollars before tax within a year of closing.

Transaction Details

The acquisition consideration is structured with 100 percent stock utilizing Chevron’s equity. In aggregate, upon closing of the transaction, Chevron will issue approximately 317 million shares of common stock. Total enterprise value of 60 billion dollars includes net debt and book value of non-controlling interest.

The transaction has been unanimously approved by the Boards of Directors of both companies and is expected to close in the first half of 2024. The acquisition is subject to Hess shareholder approval. It is also subject to regulatory approvals and other customary closing conditions.

The transaction price represents a premium of 10.3 % on a 20-day average based on closing stock prices on October 20, 2023.

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