Forbes Analysis: Chevron Buyout Of Hess Highlights Renewed Focus On Production Growth

Chevron CEO Mike Wirth (R) speaks with S&P Global Vice Chairman Daniel Yergin during CERAWeek by S&P Global in Houston, Texas on March 6, 2023. (Photo by Mark Felix / AFP) (Photo by MARK FELIX/AFP via Getty Images)

[Note: This story is also published at Forbes.com]

Any new merger announcement as sizable as Monday’s announced deal between ChevronCVX and Hess inevitably invites comparisons to other recent deals of similar size. The obvious comparison point for this buyout is the deal between ExxonMobilXOM and Pioneer Natural ResourcesPXD announced less than two weeks earlier.

Andrew Dittmar, Senior Vice President at Enverus Intelligence Research (IER) said in an email that, “the common thread connecting these deals is majors looking to refill their pipelines to maintain production against a declining asset base as they anticipate their legacy businesses staying profitable into the 2030s.” Even more than that, Dittmar adds that the deal “indicates buyers are starting to place a higher focus on growth after years of solely looking to grow shareholder distributions.”

To support that latter point, Dittmar remarks on Chevron’s willingness to enter into a deal that it admits is near-term dilutive to EBITDA and free cash flow in exchange for the prospect of significant equity production growth over the longer term. This is indicative of the year-long trend seen throughout 2023 of the larger oil and gas companies renewing their focus on growing their legacy oil and gas businesses after years of searching for investments to bolster their ESG credentials at the demand of investors and financial markets. With even BlackRockBLK CEO Larry Fink now de-emphasizing ESG factors, it is only natural that these major energy producers would follow suit.