Chevron entry to Guyana oilfields solves company's top challenge
On Friday, the U.S. oil producer closed its $55-billion acquisition of Hess - among the largest ever oil and gas deals - and gained the latter's stake in Guyana's Stabroek Block after prevailing in a legal fight against larger rival Exxon Mobil (XOM.N), opens new tab.
Before the deal closed, concerns had been rising about Chevron's financial and production growth prospects, with its reserves of oil and gas dropping to the lowest in at least a decade.
The Stabroek Block holds at least 11 billion barrels of oil equivalent and is one of the most significant oil discoveries in decades.
"The combination enhances and extends our growth profile well into the next decade," Chevron CEO Mike Wirth said about closing the Hess acquisition.
Some investors cheered the development as boosting the company's long-term prospects.
"The acquisition plugs a free cash flow hole that Chevron had looming at the end of this decade into the 2030s," said David Byrns, a portfolio manager at American Century Investments, which has a $351-million position in Chevron, according to LSEG data.
Without Hess, it was unclear how Chevron could maintain free cash flow, he said, adding the acquisition is also expected to help Chevron sustain its dividend into the 2030s.
The closure is a much-needed win for Chevron after several tough months during which it announced global layoffs, faced rising safety issues, and lost exports from Venezuela. Its shares fell 7.5% over the past year. On Friday, they declined 2% in midday trading.
Chevron's oil and gas reserves, or the amount it can potentially extract from its oil and gas fields, fell to 9.8 billion boe at the end of 2024, the lowest point in at least a decade.
Its organic reserve replacement ratio, a measure of how much new oil and gas was added to reserves compared to the amount it produced, and which excludes acquisitions and sales, was just 45%. A ratio of 100% or more means the company is replacing its reserves at the same rate that it depletes them.
By comparison, UK-based oil major Shell and French oil major TotalEnergies both have average reserve replacement ratios over the past three years of more than 100%.
Chevron production volumes after combining with Hess could reach 4.31 million boe/d in 2030, significantly higher than what Chevron would produce as a standalone company, said John Gerdes, president of Gerdes Energy Research.
Chevron produced 3.3 million boe/d in 2024.
Exxon, which operates the Stabroek Block, and CNOOC, the other minority partner in the field, filed arbitration claims against Hess last year, arguing they had a contractual right of first refusal to purchase Hess' stake.
The battle was pivotal to Chevron, given that the Guyana field was the most coveted asset in Hess' portfolio. If the arbitration had gone against Chevron, the acquisition would have collapsed.
Another long-term question that Chevron faces is whether it will extend its contract to operate the giant Tengiz oilfield in Kazakhstan, which expires in 2033.
Chevron has a 50% stake in the Tengizchevroil joint venture that it operates. The company told Reuters in January the field would produce about 1 million boe/d after an expansion project reached full capacity.
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