Chevron: Arbitration Ruling Clears Way for Hess Acquisition

Key Morningstar Metrics for Chevron

• Fair Value Estimate: $155.00
• Morningstar Rating: ★★★
• Morningstar Economic Moat Rating: Narrow
• Morningstar Uncertainty Rating: High

The International Chamber of Commerce has ruled that Chevron CVX‘s proposed acquisition of Hess does not give ExxonMobil XOM the right of refusal for Hess’ HES Guyana assets. As a result, Chevron can proceed with the acquisition, which was delayed when Exxon filed for arbitration last year.

Why it matters: By acquiring Hess, Chevron gains entry to one of the most prolific discoveries in recent history and addresses concerns about its lack of long-term production growth.

• In October 2023, Chevron announced plans to acquire Hess for $53 billion, primarily due to the latter’s 30% stake in over 11 billion barrels of oil equivalent of discovered recoverable resources in Guyana.

The bottom line: Our fair value estimates and narrow moat ratings for Chevron and Exxon are unchanged. We do not currently explicitly include the Hess acquisition in our Chevron valuation, but our analysis suggests the deal’s closing will not materially change our valuation.

• We view the outcome positively for Chevron, given the quality and size of the Guyanese assets. We do not view the ruling as a negative for Exxon, whose ultimate goal seemed to be denying Chevron access or securing a favorable ruling for use elsewhere, rather than acquiring the assets itself.
• Although Chevron has improved its long-term growth outlook, we continue to prefer Exxon, given its favorable earnings growth outlook, including growth in Guyana, which it secured at very favorable terms and through discovery rather than acquisition.