Why Did Chevron Covet Hess? Because of Guyana.

The much-predicted wave of oil consolidation is happening.

The oil giant Chevron announced on Monday it was acquiring rival Hess in a deal worth $53 billion. This comes weeks after ExxonMobil announced a merger with Pioneer Natural Resources in a similarly sized deal. While that tie-up was largely interpreted as ExxonMobil trying to consolidate its position in West Texas’s immensely productive Permian Basin, this latest deal is about Chevron getting in on another prize: the massive offshore oil resources of Guyana.

From 2014 to 2022, the South American nation has seen its gross domestic product grow from just over $4 billion to almost $14 billion. With a population of just over 800,000, the tiny country has been transformed by the 2015 discovery of oil by ExxonMobil off its coast, which turned into actual production by 2019. Today, the area known as the “Stabroek block” is controlled by a consortium of ExxonMobil, Hess, and the Chinese oil company CNOOC, of which Hess is a 30 percent owner. (Hess also has positions in North Dakota, the Gulf of Mexico, and Southeast Asia.)

“The Stabroek block in Guyana is an extraordinary asset with industry leading cash margins and low carbon intensity that is expected to deliver production growth into the next decade,” Hess and Chevron said in their statements today.

Hess in its most recent quarterly earnings said that its production in Guyana had almost doubled, going from 67,000 barrels per day in the second quarter of last year to 110,000 in the second quarter of this year.

Hess estimates that there are 11 billion recoverable barrels in the Stabroek Block. Last year, Rystad Energy wrote that more potentially drillable oil was probably discovered in Guyana than in any other country.

Guyana’s resources are a rare source of newly discovered growth for the oil industry. Western oil companies recently have had to abandon projects in Russia due to sanctions, while heavy investor and political pressure have made European oil companies less interested in, well, oil. Meanwhile in Latin America, Guyana’s neighbor, Venezeula, further nationalized its oil industry in the 2000s, and ExxonMobil was one of the first oil companies to leave the country entirely. But in turning its attention to Guyana, ExxonMobil quickly found huge stores of crude with lower sulfur content than Venezuela’s, which is notoriously expensive to refine and thus less profitable to drill.

So what does this deal mean for climate change and clean energy?

Like other large oil companies, Chevron has a bevy of projects that could fit into a lower-carbon-emissions world, like carbon capture and hydrogen production. Indeed, just last month it spent around half a billion dollars to acquire a stake in a planned hydrogen storage plant in Utah. But while Chevron has said it wants to spend $10 billion on low carbon investments by 2028, that figure is dwarfed by today’s announced deal with Hess alone.

The massive move is an indication that Chevron expects there to be steady oil demand in the years and decades to come, as Hess’s operations are still growing. “Hess brings growth to Chevron — growth in resource, growth in production, growth in cash flow,” chief executive John Hess said on CNBC on Monday morning. “We have the best growth portfolio in the business.”

And yes, toy trucks. "The Hess toy truck will continue," Hess said.