As we have noted since the Central Banksters started to rapidly raise interest rates, the decade’s long merger and acquisition spree is over. However, the “Bigs” will still get bigger, as they buy out overleveraged companies that can’t afford to borrow at high rates to refinance while, at the same time, recessionary pressures erode their profitability.
A few of the “Bigs” with big money that want to get bigger will do what they can to buy out competitors and/or expand in new directions.
CHEVRON GRABS HESS FOR $53 BILLION IN STOCK
Less than a month after ExxonMobil paid $59.5 billion to take over shale oil producer Pioneer Natural Resources (“ExxonMobil Buys Major Shale Producer for $59.5 Billion in Stock,” 17 Oct 2023), Chevron has announced its $53-billion purchase of Hess Corp.
Hess is a global oil and gas company ranked 358 in this year’s Fortune 500 and has a market capitalization of about $50 billion.
In the all-stock deal, Chevron will trade 1.025 of its own shares for each share of Hess, which closed at $163.02 on 20 October. That translates to a price of about $171 for each share of Hess, a premium of about 10 percent above the 20-day average share price.
“The prize here is Guyana,” analyst Peter McNally at Third Bridge Group wrote in a note.
By owning Hess, Chevron will own 30 percent of more than 11 billion barrels of oil and related resources in the South American country that has become a fast-rising producer.
Chevron also takes over Hess’s offshore production in the Gulf of Mexico and the Asia-Pacific region and its shale operations in the Bakken basin, spanning parts of Montana and the Dakotas.
The deal will not only boost Chevron’s production and free cash flow, but also will fatten investors’ returns: the company expects to raise its first-quarter 2024 dividend by 8 percent and sink another $2.5 billion into buying back its own stock, it announced.
The Chevron and ExxonMobil deals not only solidify the companies’ place among global oil giants, but also indicate their faith in the long-term, profitable future of the oil industry. In contrast, European majors have publicized their diversification into renewable energy development.
PUBLISHER’S NOTE: Chevron and ExxonMobil are taking multi-billion-dollar gambles.
China has said its oil consumption has peaked, as we reported in “China’s Largest Oil Company Says Gasoline Demand is Permanently Declining” (3 Oct 2023). The International Energy Agency recently said global oil demand will stagnate before 2030 and decline from there.
Electric cars dominate new car sales in Scandinavia. France is among the countries that have banned sales of gas and diesel cars after 2030. General Motors and Volkswagen have announced they are no longer investing in making improvements to fossil-fuel-powered passenger cars.
Surveys show consumers, especially those younger than 40, are demanding a fossil-fuel-free future.
Analysts have been warning for several years that oil companies risk owning “stranded assets” – oil and gas fields that will never pay out as the energy transition curbs demand.
Chevron and ExxonMobil have not disclosed their reasons for betting on an energy future that more closely resembles the 1940s than the 2020s.