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In 2000, the Hess family sold the New York Jets to tycoon Woody Johnson for $635mn. That was a blowout valuation at the time. The American football franchise is now valued at 10 times more, despite a patchy performance on the gridiron.
Chevron is hoping it has struck an equally shrewd deal with the Hess family. On Monday Chevron said it would acquire Hess Corporation, the listed oil and gas driller, at an enterprise value of $60bn. The transaction comes just weeks after Chevron arch-rival Exxon snapped up another independent energy producer, Pioneer Natural Resources, at an enterprise value of $64bn.
Both Chevron and Exxon are using their shares as a currency, eschewing debt that has turned pricey. In both deals, the buyers are giving up just over a tenth of pro forma equity to access ostensibly high-growth businesses in a world where fossil fuel remains crucial. Despite — or perhaps because of — the energy transition, supermajors covet “independents” like never before.
There are more targets than buyers. No matter how titanic the bidder, it must find complementary benefits in any purchase to justify issuing a stack of new shares.
Hess stock has more than doubled since 2020. The company had previously tangled with activist investor Elliott. The bone of contention was the balance between investment and capital returns to shareholders. Like virtually all independents, Hess now returns a majority of its cash flow to shareholders in dividends and buybacks.
Its prized assets are offshore Guyanese production and chunks of North Dakota’s Bakken shale deposit. Hess’s current daily production is 330,000 barrels of oil equivalent. The aggregate transaction valuation implies a price of $180,000 per barrel.
Chevron’s enterprise value of roughly $325bn implies a valuation of just over $100,000 per barrel for its own output. Comparing the share price to 2024 estimated earnings, it is offering a similar premium to Hess investors.
Chevron is banking on Hess’s output, particularly in Guyana, spiking ever upwards in coming years, as it is projected to do. The acquirer also aims to realise $1bn in cost efficiencies.
The Hess family’s 7 per cent equity stake is now valued at nearly $4bn. This time around, the clan has a chance to share in any upside the acquirer creates. But it is moot whether anyone will see an oil company as a trophy asset 23 years from now.