Adds details from investor call.
Chevron agreed to buy independent producer Hess for $53bn in stock to gain a foothold in Guyana as consolidation heats up in the US oil industry.
The second-biggest US oil major will pay $171/share for Hess, which represents a 10pc premium to the 20-day average closing price.
The acquisition hands Chevron a position in the Stabroek block off the coast of Guyana, home to one of the biggest discoveries in recent years. Chevron is also doubling down on shale with Hess's assets in North Dakota's Bakken shale play.
It is the second major takeover this month after ExxonMobil announced a $59.5bn deal for Pioneer Natural Resources to become the leading producer in the prolific Permian shale basin of west Texas and southeastern New Mexico.
An acceleration in deal-making reflects a scramble for new resources that gained momentum after the outbreak of war in Ukraine last year sparked concerns over energy security and a growing belief that oil demand is not going away anytime soon. Given its still fragmented ownership, US shale is seen as ripe for mergers.
"Ours is an industry, particularly as you get into the shale patch, that was due for some consolidation," Chevron's chief executive officer Mike Wirth told analysts. The Hess deal is "aligned with our objective of delivering higher returns and lower carbon, and continuing to extend the duration of our cash flow growth and production growth."
The combined company is expected to grow production and free cash flow faster and for longer than Chevron's current five-year guidance.
The deal gives Chevron a 30pc ownership in more than 11bn bl of oil equivalent recoverable resources in Guyana. Chevron will also gain 465,000 net acres of "high-quality, long-duration" inventory in the Bakken, as well as assets in the Gulf of Mexico.
Chevron expects to recommend an increase in its first quarter dividend of 8pc, as well as lift share buybacks by $2.5bn once the deal closes.
The transaction is expected to result in $1bn of cost savings within a year of closing. Chevron expects to step up asset sales to $10bn-15bn through 2028.
Under the terms of the deal, Hess shareholders will receive 1.0250 shares of Chevron for each Hess share. The total enterprise value, including debt, of the transaction is $60bn.
The deal has been approved by the boards of both companies and is expected to close in the first half of 2024. Hess chief executive John Hess is expected to join Chevron's board.
Wirth downplayed any potential issues getting anti-trust clearance, given "this is purely an upstream production transaction, so there's no refining or marketing involved."
