Chevron Makes $53 Billion Bet on Oil Future With Hess Acquisition

The $53 billion acquisition of Hess Corp. by Chevron is not even the largest in the energy industry this month, as major producers grab the initiative as oil prices soar.

Crude prices are sitting at $90 per barrel after creeping up 9 percent this year, which means huge drillers are loaded with cash and seeking for areas to spend lots of cash. Crude prices increased substantially in early 2022 with Russia's invasion of Ukraine.

(Photo : by ROBYN BECK/AFP via Getty Images)
Gas prices are seen at a Chevron gas station in Los Angeles on September 28, 2023. California gas prices are nearing USD $7 per gallon in some locations as oil prices surge toward $100 a barrel.

Less than two weeks have passed since Exxon Mobil announced that it will buy Pioneer Natural Resources for around $60 billion.

Oil Prices are Skyrocketing

A variety of factors, notably the conflict in Ukraine, are pushing oil prices upward, according to NBC News.

Saudi Arabia and Russia's reduced oil output has already put pressure on the oil market, and now a clash between Israel and Hamas might spark a wider crisis in the Middle East. According to a study by the U.S. Energy Information Administration, while strikes on Israel do not affect the world oil supply, they "raise the potential for oil supply disruptions and higher oil prices."

What the Acquisition Entails

Chevron announced on Monday that the purchase of Hess included a significant oil field in Guyana as well as shale holdings in the North Dakota Bakken Formation.

Guyana, a nation in South America with 791,000 inhabitants, is on track to overtake Qatar, the United States, Mexico, and Norway as the fourth-largest offshore oil producer in the world.

In recent years, it has grown to be a significant producer as Exxon Mobil, China's CNOOC, and Hess have engaged in a competitive battle for the extremely profitable oil reserves in northern South America.

Hess is being purchased by Chevron using shares. For each share of Hess, stockholders will receive 1.0250 Chevron shares. Chevron estimated the acquisition to be worth $60 billion, including debt.

Amid growing concerns about climate change following a summer of record-breaking heat, high energy prices have encouraged further drilling and exploration as well as significant profits for investors.

Britain approved a significant oil and gas project in the North Sea last month despite UN and scientific advisories that the world must halt developing new fossil fuel resources if it is to avoid a catastrophic climate change.

According to Chevron, the agreement would enhance the amount of money returned to shareholders. The business expects being able to suggest raising the first-quarter dividend by 8% to $1.63 in January. The board would still have to approve this. Once the deal closes, the business anticipates increasing stock buybacks by $2.5 billion to the high end of its guidance range of $20 billion annually.

After six months of discussions, the boards of both Chevron and Hess have authorized the agreement, which is expected to finalize in the first half of 2019. Hess shareholder approval is still required. The CEO of the business, John Hess, is anticipated to join Chevron's board. His family controls a sizable percentage of Hess.