{"id":4784,"date":"2023-10-24T00:33:23","date_gmt":"2023-10-24T00:33:23","guid":{"rendered":"https:\/\/infundpros.com\/business\/dealmakers-see-chevron-hess-tie-up-as-the-start-of-oil-arms-race\/"},"modified":"2023-10-24T00:33:23","modified_gmt":"2023-10-24T00:33:23","slug":"dealmakers-see-chevron-hess-tie-up-as-the-start-of-oil-arms-race","status":"publish","type":"post","link":"https:\/\/infundpros.com\/?p=4784","title":{"rendered":"Dealmakers see Chevron-Hess tie-up as the start of oil \u2018arms race\u2019"},"content":{"rendered":"
\n

The two biggest US oil companies have set off a race to secure petroleum reserves for the decades ahead, inking multibillion-dollar transactions to snap up the most promising production hotspots despite predictions that demand will peak by 2030. <\/p>\n

Chevron on Monday announced its biggest ever acquisition: a $53bn deal for US operator Hess, giving it a foothold in oil production off the coast of Guyana, the industry\u2019s most significant discovery in the past decade.<\/p>\n

It struck less than two weeks after ExxonMobil, America\u2019s other supermajor, unveiled a $60bn takeover of Pioneer Natural Resources, which is the largest operator in the world\u2019s most prolific oilfield, the Permian Basin of Texas and New Mexico. <\/p>\n

Both deals are on a scale rarely seen since the megamergers of the late 1990s and early 2000s \u2014 BP-Amoco, Exxon-Mobil and Chevron-Texaco \u2014 that formed the modern supermajors. More transactions now look likely in the near term, analysts and dealmakers say, as other companies move to gain scale and lock down the best remaining drilling sites in an attempt to produce the lowest-cost barrels. <\/p>\n

It is a bet on the longevity of demand for fossil fuels at a moment when bodies such as the International Energy Agency envisage demand peaking before 2030. <\/p>\n

\u201cWe live in the real world, and have to allocate capital to meet real world demands,\u201d Chevron chief executive Mike Wirth said in a recent interview with the Financial Times, predicting demand for oil \u201cwill continue to grow to 2030 and beyond\u201d.<\/p>\n

Globally, $254bn worth of merger and acquisition deals have been announced in oil and gas this year, according to LSEG, the highest year to date total since 2014.<\/p>\n

\u201cIt is an arms race,\u201d said one dealmaker involved in the sector\u2019s recent flurry of activity. \u201cIn most sectors, deal one doesn\u2019t necessarily lead to deal two and deal three. I believe in this case it will, because timing is of the essence and the two largest players have made their moves.\u201d<\/p>\n

Analysts said one of the most alluring tie-ups could be BP and Shell, though they cautioned that a number of serious obstacles stood in the path of any such deal. Large independent producers in abundant US shale regions could also look to combine or snap up smaller rivals. <\/p>\n

UK-based BP and Shell have complained that their valuations have lagged behind Exxon and Chevron, believing that is partly down to greater pressure on energy companies in Europe to embrace the clean energy transition \u2014 including its uncertainties.<\/p>\n

The US supermajors have taken a more aggressive stance on future oil production despite growing efforts to decarbonise the global economy. Neither Exxon nor Chevron have pivoted into renewables such as wind and solar, preferring \u201cmolecules rather than electrons\u201d, in Wirth\u2019s phrasing. That stands in contrast to their European rivals whose green push might make a significant oil deal more challenging. <\/p>\n

Alex Beeker, an analyst at Wood Mackenzie, said: \u201cEuropean majors have laid out a very different path when it comes to the future of oil demand, so it would be a big pivot for a BP or Shell to do a big oil and gas deal now.\u201d <\/p>\n

However, one analyst at a London-based investment bank, who asked not to be named, said BP and Shell risked being left behind.<\/p>\n

\u201cThere was already a valuation gap [with the US supermajors], but with these recent deals the production gap is also becoming more glaring, which will increase pressure on the two companies to find a solution,\u201d the analyst said.<\/p>\n

But they also cautioned the timing may not be right for a deal. While some analysts believe BP might appear vulnerable to a takeover given its lagging share price and the resignation of CEO Bernard Looney last month, Shell may not be best positioned to strike.<\/p>\n

Shell chief executive Wael Sawan only started in the top job on January 1 of this year, and while his focus on profitability and oil and gas production has quickly won over many investors, they believe it may be too bold a gambit so early in his tenure.<\/p>\n

Arjun Murti, an analyst at Houston-based energy advisory and investment firm Veriten, said a tie-up between BP and Shell could be \u201clogical\u201d.<\/p>\n

\u201cYou need size and scale to compete and they can see ExxonMobil and Chevron getting bigger with their recent deals,\u201d said Murti, who is known for having predicted oil\u2019s 2008 rally beyond $100 a barrel when he was an equity analyst at Goldman Sachs.<\/p>\n

\u201cThey are running the risk of being left behind, so a merger could make a lot of sense if they can address any antitrust concerns, particularly as the European majors are arguably in the toughest spot given the increased pressure they face over climate change.\u201d <\/p>\n

BP said it would not comment on \u201cspeculation\u201d. Shell declined to comment.<\/p>\n

Murti said the other European majors, France\u2019s TotalEnergies and Italy\u2019s Eni, would also be exploring their options but cautioned that national pressures would make any large deal more challenging: Eni is 30 per cent owned by the Italian government while TotalEnergies, though no longer state-owned, remains close to the French government.\u00a0<\/p>\n

Among the US\u2019s shale exploration and production specialists, analysts said larger remaining companies would look to combine to gain scale and present an attractive target for a supermajor buyout down the line. Dealmakers said groups including Occidental Petroleum, ConocoPhilips and Marathon Oil could be among the next to make a move.<\/p>\n

\u201cBy no means are Exxon or Chevron done,\u201d said Andrew Dittmar, an analyst at Enverus. \u201c[But] we\u2019ve seen their moves for this particular wave. I think we take a step back and get some of these independents consolidating among each other in the rest or \u201823 and \u201824.\u201d<\/p>\n

Wirth on Monday said the shale patch was \u201cdue\u201d for further consolidation. \u201cWhen and where is harder to call but we have seen some transactions and perhaps we\u2019ll see some others,\u201d he said. <\/p>\n

But he insisted the Hess announcement had not been influenced by dealmaking elsewhere. \u201cThese discussions began and were under way well before the announcement or the rumours of the Exxon-Pioneer transaction,\u201d Wirth told the FT. \u201cWe were working on this independent of that and this would have happened had that not happened.\u201d<\/p>\n

The deal will nonetheless bring Exxon and Chevron into closer competition, leaving both jointly controlling the Stabroek block off the coast of Guyana, in which Hess had a 30 per cent share and Exxon retains a 45 per cent operating stake. <\/p>\n

Stabroek is the biggest oil discovery of the past decade and is set to produce as much as 1.5mn barrels of oil a day when it reaches full production. Peter McNally, analyst at Third Bridge, said it was \u201cthe real prize\u201d in Hess\u2019s portfolio. <\/p>\n

Few assets with similar prospects exist anywhere in the world, analysts said, leaving rivals that are bullish on future demand scouring for the best remaining prospects before they are snapped up by others. <\/p>\n

Clay Seigle, analyst at Rapidan Energy in Houston, said: \u201cWhen oil demand proves much more resilient than today\u2019s conventional wisdom suggests, we expect these acquisitions will be seen as well-timed.\u201d <\/p>\n

Additional reporting by Amanda Chu in New York<\/em><\/p>\n<\/div>\n

Read the full article here<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

The two biggest US oil companies have set off a race to secure petroleum reserves for the decades ahead, inking multibillion-dollar transactions…<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[22],"tags":[],"class_list":{"0":"post-4784","1":"post","2":"type-post","3":"status-publish","4":"format-standard","6":"category-business"},"yoast_head":"\nDealmakers see Chevron-Hess tie-up as the start of oil \u2018arms race\u2019 | inFundPros<\/title>\n<meta name=\"description\" content=\"The two biggest US oil companies have set off a race to secure petroleum reserves for the decades ahead, inking multibillion-dollar transactions to snap\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/infundpros.com\/?p=4784\" \/>\n<meta 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