Chevron buys Hess: Where the next energy deal may come from

Just weeks after Exxon Mobil (XOM) announced it was buying Pioneer Natural Resources (PXD), Chevron (CVX) has announced it is buying Hess (HES) in a $53 billion all-stock deal. Enverus Intelligence Director Andrew Dittmar doesn't expect any more megadeals, but there could still be more consolidation in the industry. Dittmar tells Yahoo Finance Live that some of the "large independents" could "potentially merge with one another or looking to roll up some of their even smaller-sized rivals."

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Video Transcript

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- Oil giant Chevron reached an agreement to buy rival Hess in a $53 billion all stock deal, a sign of further consolidation in the energy industry. We saw Exxon buy Shell giant Pioneer Natural Resources earlier this month for $64 billion.

For more on the mega deals, we now turn to Andrew Dittmar, Enverus senior vice president. So Andrew, let me first get your take on these headlines we're seeing. What explains do you think, Andrew, this flurry of activity we're seeing. Any common themes?

ANDREW DITTMAR: Yeah, sure. So these are the major stepping back into the market. After 10 years, we really had fairly minimal spending on global growth and exploration. Oil and gas has really profitable business lines for them right now and they're looking to get back to adding assets, both in US Shell and now internationally with Chevron buying Hess.

- Andrew, we're looking at the premiums on these deals that are not huge, but that's in part because the stocks have already climbed so much. So when we look at the oil majors that are left, that have not made big acquisitions and what they're willing to spend, what does that mean-- are the mega deals done? Was this the last one of this kind of size that we can expect?

ANDREW DITTMAR: I think we definitely see more consolidation. But in terms of deals of this scale, Exxon and Chevron were, the two big buyers-- Exxon buying Pioneer, not particularly surprising. They've been rumored for several months now. They're very focused on the Permian. Chevron buying Hess, a bit more surprising.

When you look at the other companies that could do a deal of this scale, there's really not another logical big buyer out there. The European majors, BP, Shell, they're a little bit more focused on the energy transition side of the business, maybe a bit more push back from their investor base and local governments, if they were to announce a mega oil and gas deal.

And then you step down to the really big US companies that aren't majors. Conoco already an active buyer in past M&A cycles, buying Concho a few years back, as well as Shells assets in the Permian. EOG tends to favor a bit more organic exploration.

And so I think that really, this is probably the last of the mega deals. What you're going to see from here is more of the large independents. So I think the Devens, Marathons, and Coteras of the world, looking at M&A, either potentially merging with one another or looking to roll up some of their even smaller-sized rivals.

- And Andrew, on the Chevron-Hess deal in particular, I'm just curious, do you think regulators will have any questions or concerns on that one?

ANDREW DITTMAR: No. I think in terms of getting approval, they should be in the clear. So a few more steps to go through with international assets. Need approval both in the US and I imagine in Guyana. Although having Hess sell to Chevron, a very financially stable partner, shouldn't be an issue there.

There were some potential antitrust concerns around some of these big in-basin consolidation plays. We've seen the FTC step in and be a bit more active in some of the smaller deals that were announced last year. And so there was a thought with Exxon buying Pioneer, that that could potentially come under heightened regulatory scrutiny. But we don't anticipate that happening.

Even with Exxon and Pioneer put together, you're only going to be looking at them having about 15% of the production in the Permian. So fairly small piece of a very large US unconventional pie. Here, there's really not much in the way of asset overlap with Chevron and Hess.

Chevron is going to be stepping into the Bakken, where they don't have any Shell assets. A little bit of overlap in the Gulf of Mexico and then moving into Guyana. So I think from a regulatory standpoint, they're probably in the clear here.