Chevron’s Strategic Move: Acquisition of Hess Corp
Chevron is making a significant investment with the multi-billion dollar acquisition of Hess Corp, aiming to enhance its portfolio with valuable Guyana acreage where extensive oil reserves have been identified. A recent analysis from Reuters highlights that Chevron has experienced a decline in its oil and gas reserves, reaching the lowest levels seen in a decade, alongside a troubling decrease in its reserves replacement ratio (RRR).
The decline in reserves and a concerning RRR below 100% underscore the importance of the Hess acquisition for Chevron, as it seeks to replenish its asset base and improve its RRR in the near term. During the Q4 earnings call held last month, Chevron reported a RRR of -4% for 2024, primarily attributed to significant reductions in proved reserves due to production and the divestiture of oil sands, shale, and tight assets in Canada. The company noted that the primary sources of reserve additions were extensions and discoveries in the Permian and DJ Basins.
Chevron specified that when excluding the effects of asset sales and acquisitions, its organic reserves replacement ratio stood at 45%. The company reminded investors that regulations from the SEC limit shale development reserves to a five-year planning and execution horizon. Historically, Chevron’s RRR over the past decade averaged 88%. The current RRR falling below 100% signals that Chevron is consuming reserves more rapidly than it is able to replenish them.
