Chevron’s acquisition of Hess—the deal that has elicited pandemonium across energy sectors, and even sparked comparisons to the start of “an arms race” between supermajors, has become a multibillion-dollar process involving ExxonMobil and ownership rights over Guyanian oilfields.
In October of last year, Chevron announced plans to purchase outstanding shares of Hess in an all-stock transaction valued at $53 billion. The deal would also include Hess’s 30% stake in the Stabroek Block, an offshore oil reserve located approximately 120 miles off Guyana’s coast that covers 6.6 million acres.
But this past February, ExxonMobil preempted Chevron’s acquisition of Hess due to ExxonMobil’s majority (45%) stake in the giant Guyana oil block—the remaining 25% ownership belonging to China’s CNOOC. While ExxonMobil claims it can refuse any sale of the Stabroek block and does not intend to purchase Hess, it’s unclear how this logistical issue will play out.
As negotiations continue, oil and gas executives are left with questions: how does the impending deal over Stabroek and its production volume of 11 billion barrels of oil (estimated at $1 trillion) affect the industry at large? With COP28’s deadline to cut global greenhouse gas emissions to 43% by 2030 closing in, will the results of the potential Hess acquisition prove to be a worthwhile one? Or, is this a sign that supermajors will continue to prioritize fossil fuel over their net-zero pledges in the future?
Using insights sourced from the AlphaSense platform, we attempt to answer these pressing questions and more below.
Shaping the Competitive Landscape
Two weeks prior to Chevron’s announcement, ExxonMobil shared plans to purchase Pioneer Natural Resources, the largest operator on the Permian Basin of Texas and New Mexico, for $60 billion.
“Together, [ExxonMobil and Pioneer Natural Resources] will have an estimated 16 billion barrels of oil equivalent resource in the Permian,” ExxonMobil’s announcement stated. “At close, ExxonMobil’s Permian production volume would more than double to 1.3 million barrels of oil equivalent per day (MOEBD), based on 2023 volumes, and is expected to increase to approximately 2 MOEBD in 20.”
The Permian Basin, a large sedimentary basin in the southwestern US, is the highest-producing oil field in the country—generating an average of 4.2 million barrels of crude oil per day in 2019. In the race to gain control of major oilfields, ExxonMobil, the second largest oil refining entity in the world, and its purchase of Pioneer Natural Resources, reaffirms analyst predictions.
The ExxonMobil and Chevron acquisitions not only shaped a year of lucrative M&A deals in the industry, which valued at $234bn—the highest year to date total since 2012, according to the EIA—but were reminiscent of the large-scale mergers that shaped the modern energy landscape in the late 1990s and early 2000s (e.g., P-Amoco, Exxon-Mobil, and Chevron-Texaco). Consequently, analysts are forecasting increased energy deal-making activity “despite economic uncertainty,” PWC says.
What does this mean for the competitive landscape? Larger remaining energy companies would look to combine or merge to gain scale and present an attractive target for a supermajor buyout down the line. Some dealmakers believe Occidental Petroleum, ConocoPhilips, and Marathon Oil could be among the next to make a move.
The Details Delaying the Deal
So is Chevron’s bid for stake in the Stabroek block a worthwhile fight? The short answer: yes.
Stabroek Block’s newest oil and gas discovery in Guyana, coined the Bluefin, is described as “the industry’s most significant discovery in the past decade” by Financial Times—adding to the impressive tally of over 30 discoveries made in the Stabroek block since 2015.
ExxonMobil reported that the Bluefin well, situated in the southeastern sector of the Stabroek block and drilled to a depth of 4,244 feet underwater using the Stena Drillmax drillship, encountered around 197 feet of sandstone containing hydrocarbons. “Our exploration program continues to improve our understanding of the block’s potential to drive viable oil-and-gas development,” said the head of ExxonMobil’s Guyana operations, Alistair Routledge, in a statement.
The discoveries made by the Stabroek are so impressive that ExxonMobil is exploring the possibility of initiating its inaugural offshore natural gas production in Guyana, near the nation’s maritime boundary with Suriname. This endeavor for ExxonMobil could materialize through its seventh project in the South American country.
So what’s becoming clear is that while ExxonMobil is doesn’t appear to be stifling Chevron’s plans in an attempt to buy out Hess and expand its resources, it’s potentially preventing supermajors from tapping into the same lucrative oilfields ExxonMobil plans to build new business around.
And when it comes to the subject of reducing carbon emissions and reliance on fossil fuels, both ExxonMobil and Chevron show no signs of embracing either net-zero objectives in the near future. In fact, both U.S. supermajors have taken a more aggressive stance on future oil production and completely disregarded investing into renewables such as wind and solar.
Chevron chief executive Mike Wirth told the Financial Times he prefers “molecules rather than electrons” and oil “will continue to grow to 2030 and beyond.” Their European counterparts’ focus on sustainability stands in contrast, potentially complicating major oil transactions.
Conversations from C-Suite
“There’s quite a few interesting data points from the [ExxonMobil and Chevron] transactions. Number one is that it’s all American companies…[they] have been far more aggressive in terms of increasing their reserve base, buying more data, looking for frontier opportunities, et cetera, et cetera. And now on top of that, they go and do M&A.”
“And the reason for that is, obviously, that they see a lot of the same stuff as we reported today in terms of the energy mix going forward is quite favorable. Oil and gas is not going to disappear anytime soon. And they put their money where their mouth is and they make these acquisitions.”
“We talked to some of these companies and asked them whether this is going to have any impact on their exploration budget, and the answer is no. They’re doing both. They’re going to continue to invest in exploration. And at the same time, they’re going to make sure that they secure the near-term production targets. I think you’re going to see that trend will continue also with the European companies. They feel the pressure to do similar things.”
– TGS ASA | Q3 2023 Earnings Call
“But I was out in a number of meetings with John Hess, sometimes with larger Hess shareholders, I would say, in general, people see the long-term value proposition very clearly here [of acquiring Hess]. And I think they see it as a combined company that is stronger and one that is set up to be stronger for longer with the ability to really sustain cash distributions to shareholders in a very consistent, predictable and durable fashion long into the future. And so that is–there’s no doubt about that.”
– Chevron Corporation | Q3 2023 Earnings Call
Forecasting the Future of E&I
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Content Marketing Specialist
Formerly a writer for publications and startups, Tim Hafke is a Content Marketing Specialist at AlphaSense. His prior experience includes developing content for healthcare companies serving marginalized communities.
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