Chevron has plenty of growth down the pipeline, despite delays to the Hess needle acquisition

Chevron (CVX 0.82%) he made a bold move last year agreeing to acquire rival Hess (HES 1.16%) in a nearly $60 billion business. That purchase will indeed move the needle for the oil giant. Management expects the transaction to help it more than double free cash flow by 2027 if oil prices average $70 a barrel. Meanwhile, it will expand the company’s production growth profile into the 2030s.

Unfortunately, the business hit a higher speed. However, while Chevron believes it will eventually close the deal, it could very well grow without Hess.

Plenty of fuel to grow

Chevron CEO Mike Wirth made it a point to highlight his company’s organic growth drivers during second quarter conference call.

“We continue to drive growth opportunities in our traditional and new energy businesses by adding new exploration activities in West Africa and South America,” he said, “achieving key milestones in the ACES green hydrogen project and commissioning of the expansion of the Geismar renewable diesel plant. which it is to be expected to come online by the end of the year.”

The oil company has taken an “all of the above” approach to the ongoing transition to clean energy. Keep exploring for and develop new oil and natural gas resources to ensure the world has the hydrocarbon fuels it needs for decades to come. For example, Wirth noted this under the earnings name first oil is imminent at its Anchor development in the Gulf of Mexico. This is one of three projects the company expects to come online by 2026, adding a total of 300,000 barrels per day to its oil production.

At the same time, Chevron is investing in more low-carbon opportunities, including green ones hydrogen and renewable fuels. These investments will enable the company to build new growth platforms to meet the world’s growing demand for low-carbon energy.

It will take some time for Chevron’s low-carbon investments to pay dividends. However, the company’s hydrocarbons business will provide plenty of fuel short term.

“Without Hess, we have 10% growth in free cash flow,” Wirth noted on the call. “We have projects coming online in numerous basins around the world and in and our chemicals business.”

An expected accelerator

While Chevron doesn’t need to buy Hess to grow, the company has no plans to let go of this delayed deal. Hess shareholders recently approved the transaction. Meanwhile, the company expects the Federal Trade Commission to complete its review process in the current quarter. If the deal goes through, that will leave one final hurdle: an arbitration panel ruling scheduled for next year to determine whether Hess’ partners in Guyana (Exxon and CNOOC) have preemptive rights to acquire Hess’s stake in that lucrative oil development.

On the earnings call, Wirth said the company “remain(s) confident that this is a straightforward matter and the outcome will state that preemption does not apply.” Because of this, Chevron is committed to the merger, which it hopes to close next year.

“This is a deal that is the right deal for us,” Wirth said. It would significantly enhance the oil company’s portfolio by adding resources from the high-growth offshore Guyana and the high-margin Bakken Shale. It would also add a complementary business in the Gulf of Mexico and an ongoing free-cash-flow natural gas production business in Southeast Asia. The deal would allow Chevron to improve its portfolio by selling non-core assets. (It plans to sell $10 billion to $15 billion in assets by 2028.) Meanwhile, the deal would be very favorable to its free cash flow, driven by cost cuts and growing cash flow from acquired assets.

While Chevron remains focused on closing the Hess acquisition, the delay won’t stop it making another purchase if the right business comes along. Wirth stated on the call that “if another opportunity presented itself, that they were compelling, we’re certainly in a position to consider it.” However, it doesn’t need to make a deal even if the Hess deal falls apart. That’s because it can organically grow its free cash flow by a double-digit percentage .rate for the next few years — fast for a company of its size.

Chevron can win even if lose

Chevron fully expects to close the Hess acquisition. However, even if this business falls apart, the company will be only fine. It has a very strong one organic growth profile, which puts it in an excellent position to increase shareholder value. Because of all these thingslooks like a great oil stock to buy and hold for the long term.