On Mondays, We Make Deals: Oil Giant Chevron Just Agreed To Buy Hess

On Mondays, We Make Deals: Oil Giant Chevron Just Agreed To Buy Hess
Paul Allison, CFA

4 months ago1 min

Mentioned in story

What’s going on here?

On Mondays, we make deals: Californian oil giant Chevron just agreed to buy smaller player Hess. That’s like, totally fetch.

What does this mean?

Dealmaking’s back, baby: after months of tumbleweeds in the usually lucrative world of mergers and acquisitions, Chevron just announced the second mega-deal in the oil industry this month. Both this deal and Exxon’s purchase of Pioneer will be paid in shares, which means Chevron and Exxon will issue $60 and $65 billion worth of extra shares respectively. After all, interest rates have made it more expensive to borrow money, so paying in cash is prohibitively pricey these days. Thing is, shareholders will put a lot more scrutiny on stock-only deals, expecting big results in return for those freshly minted new shares.

Hess valuation

Why should I care?

For markets: More is more.

Oil companies have tended to use the money they make from higher-than-normal oil prices to explore and extract as much oil as possible. But if projections that the world will eventually swap fossil fuels for greener alternatives are right, then flooding a declining market with even more oil is probably a bad idea. Big firms have cottoned on, too: instead of investing in more wells, they’re snapping up smaller competitors instead – a bid to command a bigger share of a potentially smaller market.

The bigger picture: Oceans apart.

European and US energy firms have very different plans for dealing with the green transition. European oil firms are shedding their oil assets to lower their carbon footprints and free up funds for cleaner alternatives, while US companies are doubling down on the dirty stuff. Investors have spoken: over the last five years, big American oil stocks have stormed way ahead of their European counterparts.

Rebound for energy stocks


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