Shares of Hess Corporation (HES) and Chevron Corporation (CVX) are trading higher on Tuesday, buoyed by the news that the Federal Trade Commission (FTC) has completed its antitrust review of the proposed merger between the two companies. This key milestone clears a significant hurdle for the transaction to move forward.
To ensure the merger’s success, Hess and Chevron have agreed that John Hess, the CEO of Hess, will not be included on Chevron’s board. Meanwhile, Exxon Mobil Corp (XOM) and its partner CNOOC Ltd have asserted their right of first refusal for any sale of Hess’s stake in a lucrative Guyana oil-producing joint venture. The arbitration panel is expected to hear these claims in May 2025.
Analyst Ryan M. Todd of Piper Sandler has increased his valuation of Hess’s Guyana operations (net to HES) from $40.6 billion to $45.6 billion, translating to a per-share value of $132 to $149. This revision is based on notable increases in discovered resources and productivity in Guyana. Todd estimates Hess’s stand-alone value at around $170 per share, assuming a Brent crude price of $75 per barrel. He believes this makes Hess a compelling value opportunity, a sentiment not seen in years.
Todd highlights the impressive reservoir productivity and successful debottlenecking efforts in Guyana, which have boosted each FPSO’s peak productive capacity from approximately 2.0 Mboe/d to around 2.5 Mboe/d (representing a 12%-20% improvement). While second-quarter production in Guyana reached 192 kbd (net to HES), Todd forecasts net production to peak at around 775 kbd. This equates to a 17% annual compound annual growth rate (CAGR) for almost a decade, with peak CFO and FCF projected at $10.3 billion and $8.7 billion, respectively. Notably, the company’s breakeven point for 2023 is estimated at $2.2 billion.
Adding to the bullish sentiment, Wolfe Research analyst Doug Leggate has upgraded Hess from Peer Perform to Outperform with a price target of $150. Leggate’s optimistic outlook is driven by his belief that the current market conditions and the potential merger outcomes create an attractive risk/reward profile for Hess shares. He emphasizes that the valuation remains compelling, regardless of whether the Chevron deal goes through. Leggate outlines three scenarios for Hess that support a positive outlook:
1.
Successful Merger with Chevron:
This scenario would close the current 11% arbitrage gap between the valuations of Hess and Chevron.2.
Failed Merger:
In this scenario, Leggate expects Hess to trade based on its fundamentals, with a fair value starting point estimated at around $150 per share.3.
Failed Merger with a Willingness to Be Acquired:
This scenario suggests that Hess has shown a willingness to be acquired, and Chevron remains the most likely potential acquirer.As of Tuesday’s last check, HES shares were up 1.9% at $138.38, while CVX shares rose 1.28% at $149.17.
This positive news for Hess highlights the growing potential and value of the company’s operations in Guyana and underscores the attractive investment opportunity, whether or not the merger with Chevron is finalized.
