Chevron Corporation (NYSE:CVX) plans to reward shareholders with further buybacks and higher dividends after unveiling the $53 billion acquisition of Hess.
But this wasn't enough to outweigh investors' concerns about the big ticket purchase, including surprise at the timing of the deal just days after rival Exxon announced the purchase of Pioneer Natural Resources.
Chevron stock fell by 3.5% to about US$161 per share in the early afternoon on Monday.
The all-stock acquisition deal values each Hess share at $171 per share and including debt, the enterprise value of the deal amounts to $60 billion.
Chevron said the combined company is expected to grow production and free cash flow faster and for longer than its current five-year guidance.
Pierre Breber, Chevron's chief financial officer said this greater confidence in long-term cash generation meant the oil giant “intends to return more cash to shareholders with higher dividend per share growth and higher share repurchases."
On closure, Chevron intends to increase share repurchases by $2.5 billion to the top end of its guidance range of $20 billion per year in a continued upside oil price scenario.
It also expects to increase its first-quarter dividend per share by 8% to $1.63 in January.
The deal upgrades and diversifies Chevron's portfolio, the firm said in a statement, boosting its shale assets and adding the Stabroek block in Guyana which it called “an extraordinary asset.”
Hess' Bakken assets add another leading US shale position to Chevron's DJ and Permian basin operations and further strengthen domestic energy security, it said.
"This combination positions Chevron to strengthen our long-term performance and further enhance our advantaged portfolio by adding world-class assets," said Chevron chairman and CEO Mike Wirth.
The capital expenditure budget of the enlarged group is expected to be between $19 and $22 billion and with a stronger portfolio after closing, Chevron expects to increase asset sales and generate $10 to $15 billion in before-tax proceeds through 2028.
The deal is expected to achieve run-rate cost synergies of around $1 billion before tax within a year of closing.
- Updated with share price movement -