Chevron buys Hess for $53 billion in second mega oil merger this month

Chevron is acquiring oil driller Hess in a $53 billion all-stock deal announced Monday, bringing the energy giant deeper into the fossil fuel business at a time when policymakers are pressing for a broader transition to renewables.

It’s the second major industry merger this month, coming after ExxonMobil’s announcement two weeks ago it would acquire shale driller Pioneer Natural Resources for $60 billion.

The investments run counter to U.S. and global climate policies, which aim to rapidly phase out the internal combustion engine and shift power grids to zero emissions energy. The International Energy Agency reported last month that demand for oil, gas and coal will peak by 2030 before going into a steady decline, leading its executive director, Fatih Birol, to warn oil company executives that decisions to double down on fossil fuel infrastructure could prove misguided.

Still, the massive acquisitions from both Chevron and Exxon indicate their executives believe fossil fuels will continue to drive their business well into the future. Emphasizing affordability, company executives have said they see oil and gas alongside renewables.

“We need all solutions . . . we need wind, we need solar, we need electric vehicles, we also need oil and gas,” Chevron chief executive Mike Wirth told CNN in March. “We should be trying to find a way to make every component affordable, make it reliable for national security purposes, and make it ever cleaner.”

Alex Witt, senior adviser for oil and gas at the advocacy group Climate Power, said the Hess acquisition shows the company’s true priorities. “Today’s news proves what we already knew - Chevron executives only care about the short-term, putting potential profits over the lives of families and the future of our planet,” Witt said in a statement Monday.

In Hess, Chevron acquires a shale driller with oil assets across North America as well as links to Asia. Hess was founded in 1933 by Leon Hess, who delivered fuel by truck during the Great Depression before setting up an oil terminal in New Jersey. It later built a refinery, acquired oil tankers, and became a dominant force in North Dakota after oil was discovered there in the 1950s. It also has a decades-old tradition of selling branded toy trucks at Christmastime.

Analysts said the Hess acquisition will dramatically boost Chevron’s growth prospects, giving it 30% ownership in more than 11 billion barrels of oil equivalent crude in Guyana’s Stabroek block and a “potential exploration upside,” implying still more untapped resources might exist.

The deal also lets Chevron tap into the Bakken shale formation, covering parts of North Dakota, Montana and southern Canada, with an estimated 465,000 net acres of inventory.

The consolidation also comes as the major energy players are flush with cash following the run-up in crude prices in the aftermath of the Russian invasion of Ukraine in February 2022.

Oil prices have been on a wild ride ever since. They spiked more than 40% after the unprovoked attack, then moderated toward the end of 2022. But they have been trending upward more recently, spurred first by Saudi Arabian supply cutbacks and then by fears of a broader Middle East war amid the violence in Israel.

West Texas Intermediate crude, the U.S. benchmark, stood around $86 per barrel as of Monday close of trading, up almost 11% over the past six months. Brent crude stood to close to $90 per barrel.

The consolidation also may reflect oil and gas valuations being relatively low by historical standards, says Raymond James analyst Pavel Molchanov. “Among the reasons for these low valuations is the fact that some institutional investors are shying away from fossil fuels, whether due to an official policy of divestment, or simply a desire to avoid commodity risk,” Molchanov said.

Chevron stock fell 3.7% by Monday afternoon, while Hess fell around 1%.

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Evan Halper contributed to this report.