Energy investors must absorb new sector-defining deals.
This week, California-based giant Chevron announced the largest merger and acquisition in its history.of A large company based in California will buy energy company Hess for $53 billion in a deal that values the target company at $60 billion.
The deal opens Chevron’s door to vast natural deposits in the small South American nation of Guyana, home to the most significant oil discovery in the past decade. It will also provide access to the Bakken Shale formation in North Dakota. Chevron CEO Mike Wirth described Hess as a “unique and exciting opportunity.”
Chevron’s acquisition will further diversify its oil portfolio into offshore regions, which has been highly concentrated in the Permian Basin of Texas and New Mexico.
“Compared to Exxon and the European majors, Chevron is underweight in deepwater assets and has been looking to diversify this concentration risk for some time,” Wood Mackenzie analyst Alex Beeker told the Financial Times. “It was,” he said.
Despite its size, the market has not welcomed the deal. chevron stock price The stock has fallen more than 6% over the past five trading days, dropping from $168 to $156. Hess’ stock price has also fallen in recent days.
Not alone
A major maneuver is underway in the oil and gas sector. Hess’ acquisition follows closely on the heels of rival giant ExxonMobil’s acquisition of shale giant Pioneer Natural Resources for just under $60 billion.
Both acquisitions are “all-stock transactions,” meaning shareholders of the target companies will be compensated in the acquiring company’s stock instead of cash.
After posting record profits after the Ukraine conflict, cash-rich oil majors are aggressively buying up smaller competitors.Rystad Energy Analyst Matthew Wilkes sees Chevron’s acquisition marks a new era of oil mega-mergers and increased industry consolidation.
by Latest Dallas Fed Energy Survey, Oil and gas companies’ business activity increased from 0 in the second quarter to 10.9 in the third quarter, driven by exploration and production. Meanwhile, operating costs increased for the 11th consecutive quarter, with the exploration and development cost index rising from 14.9 to 18.3.
On average, survey respondents expect West Texas Intermediate (WTI) crude oil prices to end the year at $88 per barrel, while Henry Hub natural gas prices are expected to rise by $88 per barrel by the end of 2023. We expect it to be $3.14 per thermal unit (MMBtu).
“Unsustainable” benefits?
A transatlantic gulf is expanding over the future of energy. Some European energy giants, such as BP and TotalEnergies, are accelerating their transition to sustainable energy sources, while some large US companies are doubling down on their use of fossil fuel resources.
The International Energy Agency predicts that demand for hydrocarbons will peak by 2030, but Chevron’s bosses disagree.
“We can build scenarios, but we live in the real world and we have to allocate capital to meet real-world demands,” Wirth told the Financial Times last month.
Investors weigh their assessment of how long oil and gas will last in the age of renewable energy and whether Chevron and other big players can continue to deliver big profits for decades to come I’m going to do it.
