Oil’s Trick or Treat: Mergers and the Essence of Legacy – A Reflection on Recent Energy Consolidations
The energy industry was certainly served a platter of trick or treat this month with a couple of colossal mergers in the oil patch. First, ExxonMobil and Pioneer Natural Resources jointly announced a definitive agreement for ExxonMobil to acquire Pioneer. The merger is an all-stock transaction valued at $59.5 billion. Next, Chevron said “hold my beer” and last week announced that it has entered into a definitive agreement with Hess Corporation to acquire all of the outstanding shares of Hess in an all-stock transaction valued at $53 billion. Temporal coincidence? Probably not. If you turn back the clock to last year, all of the giant oil companies were bragging about all of their investments in hydrogen, SAF, renewable this and renewable that – and anything else that doesn’t have carbon in it. Then, it seems their shareholders fell out of bed and squinted hard at the EBITA that was spewing forth from the bedrock of fossil fuels. Like Jed Clampett once discovered, black gold…Texas Tea. Oh by the way, it’s as if the light just went on and folks collectively decided that fossil fuels are not disappearing this decade or the next. Even if we electrify everything, we’ll still need fossil fuels to make electricity. There still is a lot of money to be made in oil, for a while. The universe of high oil prices over the past several months has left major producers lighting cigars with Benjamins and tripping over stacks of gold bars. What to do with all of that cash? The specter of a hostile regulatory environment leaves companies with fewer options to utilize this cash. Perhaps you can raise your dividend to please shareholders or pursue aggressive stock buybacks to financially engineer EPS growth? Or…or…or…you can buy another company in an all stock purchase to minimize tax consequences. Why spend money in deep sea exploration or the drilling of potential dry holes when you can buy all the oil you want on Wall Street for a very reasonable price? The U.S. GDP for Q3 smashed analyst estimates, running hot at 4.9% compared to the predicted 4.2% and way ahead of the Q2 GDP growth of 2.1%. Remember when EVERYONE said we’d be in a recession in the latter half of 2023? Hold my beer indeed. It shouldn’t be a major surprise if we see more consolidation in the U.S. energy industry.
It does make financial sense for this consolidation to continue and there’s no doubt that the investment bankers are vigorously casting their nets in the search for value and wealth creation. Sometimes it’s not about the X’s and the O’s though, it’s about the Jimmy’s and the Joes. For example, Hess Corporation is in its 90th year of existence. Its formation is an incredible story of entrepreneurship of a family run company in an industry that makes it virtually impossible for the little guy to ever get a leg up and succeed. But, against all odds, it did happen. Over those 90 years, it was a daily tilt of David vs. Goliath and David never seemed to run out of pebbles. Everyone who contributed to that success should be proud of what they accomplished. While time itself may wash away the footprints of great brands such as Hess, Amoco and Texaco, the soul of these companies still resides in the diaspora of the hard working employees who dedicated themselves to their daily tasks who now proliferate throughout the industry, sharing their knowledge gleaned while they manned their posts at those great companies. To all of the Johnny Appleseeds out there, and especially my fellow proud Hess alums: Kudos.
Remember how great the coffee room in the office was the day after Halloween? Question: if everyone is working from home, what are we supposed to do with all of the leftover candy this afternoon? Talk about putting your dentist in a higher tax bracket? Or maybe…. Oh Oh Oh Ozempic? Better yet, think about this. A number of charitable organizations take leftover candy and send it to troops stationed overseas, as well military veterans and first responders. How to donate your leftover candy: Halloween Candy for Heroes!
