Hess Corporation And An Acquisition That Might Not Close

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Hess Corporation's share price is approaching its late-2023 highs and has a market capitalization of almost $50 billion.The proposed acquisition deal with Chevron is facing a roadblock due to Exxon ...

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href=https://seekingalpha.com/article/4683657-hess-corporation-and-an-acquisition-that-might-not-close><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>Hess Corporation's share price is approaching its late-2023 highs and has a market capitalization of almost $50 billion.The proposed acquisition deal with Chevron is facing a roadblock due to Exxon ...</p>\n\n<a href=\"https://seekingalpha.com/article/4683657-hess-corporation-and-an-acquisition-that-might-not-close\">Source Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":"LU1496350502.SGD","symbol_name":"FRANKLIN DIVERSIFIED DYNAMIC \"A\" (SGDHDG) 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almost $50 billion.The proposed acquisition deal with Chevron is facing a roadblock due to Exxon Mobil's claim of right of first refusal for any sale of Hess Corporation's stake in Guyana.Despite the risk posed by Exxon Mobil, Hess Corporation remains a valuable investment with its strong assets and financial performance.apomares/E+ via Getty Images Hess Corporation (NYSE:HES) has continued to see its share price approach its late-2023 highs and a market capitalization of almost $50 billion. The company's share price has been tied to Chevron's (CVX) since a proposed all-stock acquisition deal at just over 1 share of Chevron per share of Hess Corporation. That would push the acquisition price to more than $50 billion. As we'll see throughout this article, despite the risk Exxon Mobil (XOM) poses to the deal, Hess Corporation stock remains a valuable investment. Exxon Mobil and Guyana After Chevron's announced plan to acquire Hess Corporation, a unique roadblock has appeared. Hess Corporation has a 30% stake in Guyana, the massive new development by Exxon Mobil that will be pushing 1 million barrels / day soon. However, Exxon Mobil has filed arbitration proceedings, merged with its partner CNOOC, claiming it has right of first refusal for any sale. That claim is in arbitration and could go until next year. Exxon Mobil has said it's not trying to buy Hess Corporation, but it might be interested in increasing its stake in Guyana. Chevron has said it will not move forward on a deal without getting access to Guyana. The deal could now last until next year. We expect Exxon Mobil to make a strong push for Guyana given the value of the asset and the opportunity it has. How it pans out remains to be seen, but it's clear it's a path that could end the acquisition. Hess Corporation Developments At the same time, the company has continued to perform with its assets. Hess Corporation Investor Presentation The company's crown jewel is Guyana. 5 assets are above, and the $13 billion 6th asset just got approved, estimated to add 250k barrels / day of production. That will take the total production to 1.3 million barrels / day, but the capital cost will take a number of years to pan out. Still, it's a great asset and the company is continuing to have a breakeven in the ~$30 / barrel. 1.3 million barrels / day in a $90 / barrel oil environment is $80 million in day profit, or almost $30 billion per year. Hess Corporation Investor Presentation The other crown jewel asset is Bakken shale. Production here is almost 180 thousand barrels / day with massive operating acreage. There's 1.7 billion worth of un-produced assets here, so a potential multi-decade asset portfolio here. An acquisition here could be huge because of synergies with other assets. These developments are impressive. Hess Corporation Financial Performance The company no longer provides proper earnings, but here's insight into its last earnings. Hess Corporation Investor Presentation The company earned more than $400 million in net income at the end of the year. It has 418 thousand barrels / day in attributable production, up double-digit YoY, a massive growth unparalleled in the industry supported by the company's Guyana asset. Bakken continues to make up almost half of the company's production and is growing quickly along with Guyana assets. The company continues to spend heavily in CAPEX as Guyana ramps up, but finding and developing costs are a mere $16 / barrel and reserve replacement is at almost 180%. The company is still in its ramp up phase while generating strong net income, which will enable hefty returns. Hess Corporation and Chevron Chevron has a market capitalization of just under $300 billion, and combined with Hess Corporation it will take the combined value to roughly $350 billion. Hess Corporation Investor Presentation The company expects production to grow from roughly 3 million barrels / day to more than 4 million barrels / day as Guyana grows. We expect the company's Guyana production to pass the forecasts above, with 2027 production alone from Guyana attributable to Hess Corporation expected to cross 400 thousand barrels / day. At the same time, the combined company will be a cash flow giant. However, it does show how expensive the acquisition will be. A $50 billion acquisition would have $2 billion in 2025 FCF growing to $3-4 billion in 2027. It does continue to be backed up by the massive growth of the asset. The continued growth in production will result in shareholder returns. Thesis Risk The largest risk to our thesis is crude oil prices. The company's FCF forecast above is at Brent prices of $70 / barrel, and $20 / barrel higher in prices for 600 thousand barrels / day in production is $4 billion in extra cash flow annualized. However, the opposite is true if prices drop substantially, which could heavily hurt future returns. That's worth paying close attention to. Conclusion Hess Corporation is currently being acquired by Chevron, and based on share price, the market still thinks the acquisition will close. However, at minimum, the acquisition is being delayed. On the worst side of things, it might not close at all or the Guyana assets, with massive long-term growth potential, might be sold away. However, the upside is that Hess Corporation is a strong standalone company. The company expects CFFO to grow to almost $8 billion at $70 Brent by 2027E generating the ~$4 billion in FCF we see above. At higher prices, that FCF is higher and 2027E isn't the end of the story, with growth in Guyana expected to continue until the 2030s. The company has already started share repurchases, a smart decision early in your shareholder return strategy, when the market hasn't rewarded you for substantial shareholder returns yet. Overtime, we expect it to also grow its dividend. Regardless, with an 8% FCF yield at $70 Brent in 2027e, and rapidly growing FCF, the company is a strong investment.  Let us know your thoughts in the comments below!","kind":null,"is_publish_news":null,"is_publish_highlight":null,"is_publish_live":null,"is_publish_wemedia":null,"editions":null,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.22.4","shortVersion":"4.22.4","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2427353770"}