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Chevron (CVX) to Acquire Hess in a $53-Billion All-Stock Deal

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Chevron Corporation (CVX - Free Report) announced that it will acquire Hess Corporation (HES - Free Report) for $53 billion in an all-stock transaction. The deal, which is expected to close in early 2024, is the second-largest oil and gas acquisition to date, following ExxonMobil's $60-billion acquisition of Pioneer Natural Resources earlier this month. CVX expects to increase stock buybacks by $2.5 billion to $20 billion per year and first-quarter 2024 dividend by 8% to $1.63 per share in January, following the board's approval.

Details of the deal

The aforementioned deal is a complex one with several different components. Here are some of its key details.

Structure: The deal is an all-stock transaction, which means that Hess shareholders will receive shares of Chevron stock in exchange for their Hess shares.

Value: It is valued at $53 billion, including debt.

Approval process: The deal must be approved by shareholders of both Chevron and Hess, as well as by regulators.

Expected closing date: It is expected to close in early 2024.

Benefits for Chevron

The acquisition is a major win for Chevron, as it will give the company access to Hess' high-quality assets in Guyana and the Bakken Formation in North Dakota.

Guyana: The Guyana assets include a world-class oil discovery that is expected to produce more than 1 million barrels of oil per day by 2027. Guyana is one of the most promising new oil frontiers in the world, and Chevron is currently the largest oil producer in the country.

Bakken: The Bakken assets are located in one of the most prolific oil and gas regions in the United States. Chevron is already a major producer in the Bakken, and the acquisition will give it even more scale in the region.

In addition to the Guyana and Bakken assets, Chevron will also gain access to Hess' assets in the Gulf of Mexico and Southeast Asia. These assets will further diversify CVX’s portfolio and give it a stronger foothold in the key oil and gas regions around the world.

Benefits for Hess Shareholders

The deal is also a positive move for Hess shareholders, who will receive a premium for their shares. They will receive 1.025 shares of Chevron for each Hess share they own.

The buyout is a major consolidation move in the oil and gas industry, having several implications for consumers, policymakers and the industry itself.

Implications for Consumers

One of the biggest concerns about the deal is that it could lead to higher prices for consumers. Another concern is that it could provide Chevron with added market power, giving it more control over oil prices. The company is already the second-largest oil and gas company in the United States, and the acquisition of Hess will make it even larger.

Implications for Policymakers

The deal is also likely to have an impact on policymakers. With fewer major oil companies, the government may have less leverage to influence the industry. This could make it more difficult for the government to promote competition, protect consumers and address climate change.

Implications for the Industry

The buyout is a sign that oil companies are betting on continued fossil fuel use for years to come. Even though there is a growing shift toward renewable energy, oil and gas are still expected to play a major role in the global energy mix.

Zacks Rank and Key Picks

Currently, CVX has a Zacks Rank #3 (Hold), while HES carries a Zacks Rank #2 (Buy).

A couple of better-ranked stocks for investors interested in the energy sector are CVR Energy (CVI - Free Report) and USA Compression Partners (USAC - Free Report) , each sporting a Zacks Rank #1 (Strong Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

CVR Energy is valued at $3.28 billion. In the past year, its shares have lost 19.4%.

CVI currently pays a dividend of $2 per share or 6.13% on an annual basis. Its payout ratio currently sits at 30% of earnings.

USA Compression Partners is valued at around $2.49 billion. USAC currently pays a dividend of $2.10 per unit, or 8.30% on an annual basis.

USAC provides natural gas compression services. It offers compression services to oil companies and independent producers, processors, gatherers, and transporters of natural gas and crude oil. It also operates stations.

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