A pair of in-house Texas attorneys for Chevron is co-leading on the company’s purchase of New York-based Hess Corp. for $60 billion, which includes net debt and the book value of a non-controlling interest.
The team included JP Whalen, Chevron’s corporate counsel in Houston; and Siva Barnwell Adams, senior managing counsel for transactions, also in Houston (see The Texas Lawbook‘s profile of her here). They were joined by Jennifer Fary, senior counsel for environmental and safety in Pittsburgh; and David Cohen, senior managing counsel at Chevron’s headquarters in San Ramon, Calif.
Paul, Weiss, Rifkind, Wharton & Garrison is serving as outside counsel to Chevron, which used Morgan Stanley and Evercore as financial advisors. The Paul Weiss team was led by partner Kyle Seifried, counsel Stan Richards and partner Scott Barshay.
Wachtell, Lipton, Rosen & Katz advised Hess, which tapped Goldman Sachs and J.P. Morgan Securities as financial advisors. The Wachtell group was led by Marty Lipton, Karessa Cain and Zachary Podolsky. Timothy Goodell is Hess’ general counsel.
The deal is expected to close in the first half of 2024 if it passes muster with Hess shareholders and regulators. Hess CEO John Hess, the son of founder Leon Hess, is expected to join Chevron’s board.
The all-stock deal works out to $171 per share, or $53 billion. Hess shareholders will receive 1.0250 shares of Chevron for each Hess share, a 5 percent premium over Chevron’s closing stock price on Friday.
“This combination positions Chevron to strengthen our long-term performance and further enhance our advantaged portfolio by adding world-class assets,” Chevron chairman and CEO Mike Wirth said in a statement.
Unlike ExxonMobil’s $59.5 billion acquisition of Pioneer Natural Resources, which extends its reach and depth in the Permian Basin, Chevron’s purchase was largely about Hess’ properties in Guyana, although Hess claims it is a leading oil and gas producer in the Bakken shale in North Dakota (it also owns assets in the deepwater Gulf of Mexico and the Gulf of Thailand).
“Despite a modest 5 percent premium paid, the long-term impact, both strategic and financial, is unquestionably powerful,” Piper Sandler research analyst Ryan Todd in New York wrote in a note. “With a 30 percent stake in what is likely the industry’s most attractive global duration/growth resource, CVX [Chevron] addresses a growing shareholder concern (long-term resource depth) while increasing the long-term FCF [free cash flow] growth/duration outlook.”
While the transaction is modestly dilutive in the near-term as well as the cost to acquire a premium asset adds near-term risk, Todd likes the long-term portfolio impact for Chevron, increasingly differentiating its competitiveness within the international oil company landscape globally, which includes competitors like Exxon, BP and Royal Dutch Shell.
With more than 11 billion barrels of oil equivalent of discovered resource (conservatively), a program that will drive growth well into the next decade and industry-leading cash margins/profitability, the Stabroek Block in Guyana (which Hess owns 30% of) is unquestionably the most attractive global oil asset of the last decade-plus, Todd says.
“Future upside remains significant and is likely underappreciated in HES [Hess], with the
continued de-risking of deeper zones and the ongoing exploration program (10 to 12 wells in 2024) offering the potential to nearly double current existing resource,” he notes.
For Hess shareholders, Todd says the response is likely similar to that of Pioneer just two weeks ago, “grumbling that another premium, long-duration and differentiated resource went off the board at a modest premium but where the all-stock deal provides forward equity participation and accelerates FCF generation.”