Chevron May Be Gearing Up to Acquire Rival
SAN RAMON, Calif. -- Chevron Corp. has accumulated such a large cash pile that Wall Street analysts believe it could make an acquisition soon. According to a report by the Wall Street Journal, Hess Corp. and Chesapeake Energy Corp. would be the most likely acquisition targets.
Chevron has accumulated a massive $21 billion in cash. Even when subtracting debt, Chevron had more than $11 billion in cash on hand as of June 30, substantially more than any other oil-related company, noted S&P Capital IQ.
Fadel Gheit, a senior analyst at Oppenheimer & Co., told the Journal that Chevron simply doesn't need that much cash on hand because it can borrow money easily and inexpensively in today's low-interest-rate environment. Gheit said an acquisition would be the only reason he could think of for having such a large cash position.
"We clearly understand that borrowing rates are at historic lows," Patricia Yarrington, Chevron's chief financial officer, told the news outlet. "So, it only makes sense that we would be routinely monitoring the capital markets and assessing opportunities to put additional leverage to work on behalf of our shareholders."
Chevron declined to comment about any potential acquisitions. However, CEO John Watson in March stated, "We have the balance sheet to do acquisitions whether we had less cash or more cash now".
As for why Chevron would acquire New York City-based Hess, its smaller rival, Deutsche Bank noted that the deal would have some similarities to Chevron's purchase of Atlas Energy in 2010. In addition, the Wall Street financial firm noted that Hess, which carries a market capitalization of $17 billion, could be attractive to Chevron because of its operations in areas such as North Dakota's Bakken fields.
Conversely, Oklahoma City, Okla.-based Chesapeake Energy was cited as a potential acquisition target because its shareholders have urged management to sell the company once an attractive offer was presented, the Journal reported. Chesapeake Energy is the second-largest gas producer in the United States. The company is also known in the convenience store industry as a supplier of natural gas that can be sold at the pump. Hess and Chesapeake both declined to comment to the Journal about any potential acquisition.