Energy
Friday, October 27th, 2023 4:07 pm EDT
Key Points
- Chevron and Exxon’s Recent Acquisitions:
- Chevron has acquired Hess for $53 billion in stock, obtaining a 30% stake in Guyana’s Stabroek Block, which is estimated to hold approximately 11 billion barrels of oil.
- Exxon Mobil recently announced its purchase of Pioneer Natural Resources for $59.5 billion in an all-stock deal, doubling its production volume in the Permian Basin, the largest U.S. oilfield.
- Motivations and Different Impacts:
- Chevron’s acquisition follows Exxon’s deal with Pioneer, but each deal has distinct motivations and impacts.
- Exxon is focusing on its core operations in the Permian Basin, aiming for immediate returns and substantial production volume growth.
- Chevron is expanding into areas where it lacks existing assets, particularly Guyana and the Bakken shale, with an eye on future production growth potential.
- Ambitions and Industry-Wide Trends:
- Both Chevron and Exxon are committed to continued investments in fossil fuels, reflecting their belief in strong crude oil demand, particularly as global supplies tighten due to chronic underinvestment.
- The North American shale space, especially in the Permian Basin, has witnessed a consolidation trend, with larger exploration and production companies acquiring smaller operations to enhance drilling inventories and boost free cash flow.
- Experts predict these megadeals to be the precursor of a more significant investment wave in the oil and gas industry, indicating a shift from a multi-year bust phase in oil to a multi-year boom phase that could extend throughout the current decade.
- No Evidence of Peak Oil Demand:
- The acquisitions by Chevron and Exxon suggest a belief in the sustained strength of crude oil demand over the long term.
- Both energy giants are not convinced that oil demand has peaked, contrasting with some reports suggesting peak demand might occur before the end of the decade with the rise of clean energy technologies.
- The industry appears to be entering a period of consolidation and expects not only megadeals but also numerous “merger-of-equals” among small or mid-sized companies with market capitalizations between $3 billion to $30 billion.
- Investors are now prioritizing capital discipline over volume growth, emphasizing financial value over increasing production volume. Companies are combining to achieve scale, lower costs, and grow earnings and cash flow without significant incremental volumes.
The article discusses the recent acquisitions by energy giants Chevron and Exxon Mobil and the potential for more multibillion-dollar megadeals in the oil and gas industry. Here are the key points:
1. Recent Acquisitions:
- Chevron announced its acquisition of Hess for $53 billion in stock, giving Chevron a 30% stake in Guyana’s Stabroek Block, which is estimated to hold around 11 billion barrels of oil.
- Exxon Mobil recently acquired Pioneer Natural Resources for $59.5 billion in an all-stock deal, doubling its production volume in the Permian Basin, the largest U.S. oilfield.
2. Different Strategic Approaches:
- While both deals signal consolidation and big-money acquisitions, there are differences in their strategic focus.
- Exxon is concentrating on its core operations in the Permian Basin, enhancing its immediate returns.
- Chevron is expanding into areas where it does not yet have existing assets, such as Guyana and the Bakken shale, with an eye on future production growth potential.
3. Investment Wave in Fossil Fuels:
- Chevron and Exxon’s acquisitions reflect their commitment to continue investing in fossil fuels due to strong demand for crude oil.
- Chronic underinvestment and tightening global supplies have driven this focus on expanding fossil fuel operations.
- Consolidation in the North American shale sector, particularly in the Permian Basin, has been a trend as larger exploration and production companies have acquired smaller operations to strengthen their drilling inventories and boost free cash flow.
4. Confidence in Oil Industry:
- These megadeals are seen as a prelude to a larger investment wave in the oil and gas industry.
- The acquisitions by Chevron and Exxon are expected to instill confidence in the industry, encouraging more investments in oil and gas.
- Analysts believe that the oil industry is shifting from a multi-year bust phase to a multi-year boom phase that will last through the current decade.
5. Belief in Strong Crude Oil Demand:
- The acquisitions by Chevron and Exxon indicate a belief that crude oil demand will remain strong over the long term.
- These energy giants do not think oil demand has peaked yet, contrary to some reports suggesting peak demand will occur before the end of the decade, as clean energy technologies rise.
- The industry is entering a period of consolidation, including not just megadeals but also merger-of-equals among smaller and mid-sized companies.
6. Focus on Capital Discipline:
- Investors are now prioritizing capital discipline over volume growth.
- Companies are combining to gain scale, lower costs, and grow earnings and cash flow without significantly increasing production volume.
- This shift in focus reflects a move towards financial value and away from production volume.
In summary, Chevron and Exxon’s recent acquisitions represent a trend of consolidation and significant investments in fossil fuels, driven by the belief in sustained crude oil demand and an industry shift towards capital discipline and financial value. These deals are expected to set the stage for more substantial investment in the oil and gas sector in the coming years.
For the full original article on CNBC, please click here: https://www.cnbc.com/2023/10/27/chevron-exxons-latest-buys-could-herald-a-new-era-of-oil-megamergers.html
