American gas and oil producer Chevron (CVX) will buy Hess (HES) for $53 billion dollars in an all-stock deal. The deal will add Hess' North Dakota and Guyana operations to Chevron's portfolio. In recent years, Guyana has become one of the largest off-shore oil-producing countries in the world. Yahoo Finance Markets Reporter Ines Ferre joins to break down the deal and what it means for the company and its competition going forward.
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Video Transcript
BRAD SMITH: Well, another big deal in the energy space. Chevron has reached an agreement to buy rival, Hess, in a $53 billion all-stock deal, a sign of further consolidation in the energy industry. Yahoo Finance's Ines Ferre joins us with the details. Ines, big consolidation activity energy here. What do we know about the details here so far?
INES FERRE: And so that consolidation continues, Brad, that's right, this deal, as you mentioned, that's valued at $171 per share for Hess. Now, remember that Hess just recently reached an all-time high of around $167 a share. The deal is expected to close in the first half of next year. But the big asset, the big prize here according to Peter McNally of Third Bridge is Guyana.
And that is Guyana is a country that is next to Venezuela, it's in South America, it is one of the newest oil producers, oil was discovered there less than 10 years ago. And that is one of the most important assets inside of Hess's portfolio. So when Chevron is buying and acquiring Hess, it is doing it in part, a big part, because of Guyana because production there is expected to increase to more than 1 million barrels of oil a day by 2026.
The bottom line is what you see with this consolidation and what you've also seen with ExxonMobil saying it's going to be acquiring Pioneer for $60 billion is the boost in production via mergers in concentrated assets. So in the case of ExxonMobil, that recent merger that was announced, that is for the Permian Basin for ExxonMobil to optimize its drilling to double its footprint in the Permian Basin.
And look, Pioneer CEO, Scott Sheffield, in a recent earnings call said it best, that companies are going to be running out of inventory in the years to come and you are going to see extreme consolidation. And that is exactly what we are seeing right now. We're seeing these super majors that are gobbling up these other companies to boost their production.
- Ines, what do you think is behind the strategy to do this? Because like you just said with the Exxon deal that we got earlier this month and now with this deal from Chevron with oil, big oil doubling down on fossil fuel investments and doing this at a time when the US is certainly trying to pivot and go green. So what do you think is behind maybe some of these strategy plays that we're seeing from big oil giants?
INES FERRE: Yeah. So they are doing this via mergers because for a while, it was seen that, OK, look, we're going green-- the country is going green, so why invest in drilling new if you are going to be going into these new technologies, these green technologies? But the bottom line is that oil and gas is going to continue to be part, a major part of the energy mix going forward, even as the US goes green because you still need fossil fuels to mine, you still need fossil fuels to build factories for electric vehicles.
You still need this, and as we're seeing with the commodity right now, oil at around $90 a barrel for Brent, you're watching the industry that's sort of doubling down on fossil fuels for some time to come because this green energy is taking longer and it is going to be more expensive. Investing green energy is very expensive, especially now with the labor costs, with the cost of materials. So the strategy is to double down on these fossil fuel assets because you're going to need them in the decade to come, even as the country goes green.
- All right. Ines, thanks so much for breaking that down for us here.
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