Chevron (NYSE:CVX) agreed to buy Hess (NYSE:HES) for $53 billion as consolidation in the American oil patch continued. Yet CVX stock is down today on the news.
It’s the second big deal this month, following Exxon Mobil’s (NYSE:XOM) agreement to buy Pioneer Natural Resources (NYSE:PXD) for $29 billion.
CVX stock fell 2% overnight. It opened this morning at about $164, a market capitalization of about $310 billion. West Texas Intermediate (WTI), the main U.S. grade of crude oil, was trading at about $88, down $2.50/barrel from its recent high.
Merger Mania?
The Chevron-Hess deal is for stock, meaning the $53 billion price will be adjusted based on Chevron’s stock price. The Exxon-PXD deal was also an all-stock transaction.
Hess had been Exxon-Mobil’s partner in Guyana, discovering over 11 billion barrels off the South American coast. Chevron will now have Hess’ 30% stake in the project. Hess also had assets in North Dakota’s Bakken shale and a Southeast Asian gas business.
Chevron said the deal will let it return more money to shareholders through dividends and share repurchases. The company’s $1.01/quarter dividend now yields about 3.6%.
Other large oil production stocks barely budged after the announcement. ConocoPhillips (NYSE:COP) was down 0.8% over the weekend. EOG Resources (NYSE:EOG) was down 1.1%, and Occidental Petroleum (NYSE:OXY) was down 1.6%. Berkshire Hathaway (NYSE:BRK-A) (NYSE:BRK-B) owns about one-quarter of OXY.
Oil prices have been volatile for the last year but are near last year’s level. Moves by OPEC to cut supply and raise prices have been offset by slow global growth and the move to electric vehicles.
The head of OPEC calls oil investment “dangerously low,” but the latest deals show oil companies more interested in short-term profit than in generating new supply. The Energy Information Administration (EIA) predicts higher prices next year on short supply.
CVX Stock: What Happens Next?
Oil companies are loaded with cash thanks to global instability, but they are mainly using that cash to buy each other and give money back to shareholders.
As of this writing, Dana Blankenhorn did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
