Chevron’s Announcement Points to Further Consolidation in the Energy Industry

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Energy Market Consolidation

The two biggest oil and gas companies of the United States announced blockbuster acquisition agreements this month. Two weeks ago, Exxon Mobil (the largest of the two) said it will buy Pioneer Natural Resources in a deal valued at $59.5 billion [1], while rival Chevron said today it intends to acquire Hess Corporation for at $53 billion [2]. Both are all-stock agreements, which means that no cash is involved, but shareholders of the target company receive shares of the acquiring firm. A little over a year ago, mining giant BHP had merged its petroleum business with Woodside. [3]

The news point to a consolidation trend in the oil industry, which has seen years of underdevelopment, partly due to the transition to renewable energy. Last year profits surged due to the war in Ukraine but companies are cautious around investing in time consuming, costly and uncertain exploration and extraction projects, turning to M&A activity for a lower risk and faster increase in their oil supplies.

Exxon Mobil spoke of the increased foothold in the important US Permian Basin, provided by the proposed acquisition. Chevron highlighted the access it will get in the oil-rich Guyana and the Stabroek block, operated by Exxon.

Energy giants have also tried to please investors during this shift to clean energy, by paying out larger dividends. This was underscored by Shell's decision to sell its Permian business to return $7 billion to investors [4]. Exxon Mobil has already paid $2.73/share this year and $3.55/share in total for the whole of 2022. Chevron has delivered dividends of $4.53/share in 2023 and had paid $5.68/share last year in total. In fact, Chevron is considered among the biggest dividend payers in Wall Street and is within the top10 holdings of the SPDR Portfolio S&P 500 High Dividend ETF (SPYD.us). [5]

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The recent M&A activity is partly a result of the diminishing reliance on fossil fuels, but also shows that companies at least in the US, still see value in them. After the war in Ukraine oil prices soared leading to record profits for companies like Chevron and Exxon and they have risen again over the summer, due to the massive OPEC+ supply cuts and dwindling inventories. The elevated prices and high inflation have created renewed interest in oil.

Nikos Tzabouras

Senior Financial Editorial Writer

Nikos Tzabouras is a graduate of the Department of International & European Economic Studies at the Athens University of Economics and Business. He has a long time presence at FXCM, as he joined the company in 2011. He has served from multiple positions, but specializes in financial market analysis and commentary.

With his educational background in international relations, he emphasizes not only on Technical Analysis but also in Fundamental Analysis and Geopolitics – which have been having increasing impact on financial markets. He has longtime experience in market analysis and as a host of educational trading courses via online and in-person sessions and conferences.

References

1

Retrieved 23 Oct 2023 https://investor.exxonmobil.com/news-events/press-releases/detail/1147/exxonmobil-announces-merger-with-pioneer-natural-resources

2

Retrieved 23 Oct 2023 https://chevroncorp.gcs-web.com/static-files/dcd3cb11-6a7c-4b03-a296-9faec5560b83

3

Retrieved 23 Oct 2023 https://www.bhp.com/about/our-businesses/woodside-bhp-merger

4

Retrieved 23 Oct 2023 https://www.shell.com/media/news-and-media-releases/2021/shell-completes-sale-of-its-permian-business-to-conocophillips.html

5

Retrieved 17 Jul 2024 https://www.ssga.com/us/en/intermediary/etfs/funds/spdr-portfolio-sp-500-high-dividend-etf-spyd

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