Chevron’s (CVX) stalled acquisition of Hess (HES) is taking on even more importance for investors after the company’s oil and gas reserves fell to their lowest level in years.
Maximize Your Portfolio with Data Driven Insights:
- Leverage the power of TipRanks' Smart Score, a data-driven tool to help you uncover top performing stocks and make informed investment decisions.
- Monitor your stock picks and compare them to top Wall Street Analysts' recommendations with Your Smart Portfolio
The company’s recent results showed its reserves had fallen from 11.1 billion barrels of oil equivalent in 2023 to 9.8 billion by the end of 2024, which could be something for investors to worry about.
HES Deal on Hiatus
Exxon Mobil (XOM) and China’s CNOOC, which are Hess’s partners in Guyana, have challenged CVX’s bid for Hess in court, delaying the planned megamerger that was first announced in October 2023. A decision on the case is expected by September, but for now investors are left to fret over reserve replacements.
CVX’s reserve replacement ratio, which measures how much new oil and gas is being added to its reserves to replace ongoing production, now stands at just 45%, compared with closer to 90% over the last decade, says Reuters.
This leaves the HES plan looking all the more crucial for CVX, as the $53 billion deal would offer the company a 30% stake in over 11 billion barrels in Hess’s Stabroek block in Guyana.
Although the arbitration remains unresolved, the deal did clear a couple of big hurdles last year. Hess shareholders approved the merger, and it cleared a Federal Trade Commission antitrust review, although this bars HES CEO John Hess from the CVX board over allegations he spoke with OPEC as it sought to reduce output.
Analysts Remain Positive on CVX
Paul Cheng, an analyst with Scotiabank, told Reuters that the decline in reserves raises “red flags.” He also noted that XOM has struggled to replace reserves, which may have promoted its decision to purchase Pioneer, which last year made it the largest producer in the Permian basin.
Nevertheless, despite this warning Cheng stuck to his Buy rating on CVX after its latest quarterly earnings, albeit reducing the price target on the stock marginally from $163 to $160.
And analysts on Wall Street remain similarly positive, with the stock enjoying a Strong Buy consensus rating, based on 14 Buys and three Holds among the 17 analysts to offer a 12-month price target in the last three months.
Is CVX a Buy?
The average CVX price target of $177.00 implies about 13% upside from current levels, with the stock having risen almost 7% in the last 12 months.
