Chevron's Reserve Decline Raises Concerns Amid Hess Acquisition Battle

HOUSTON (Reuters) - Chevron's oil and gas reserves have plummeted to a decade-low, underscoring the significance of the company's proposed acquisition of Hess Corp. However, the deal faces legal challenges from Exxon Mobil, complicating Chevron's long-term prospects.

Reserve Replacement Ratio

Reserve replacement is a crucial metric for energy investors, indicating a company's future oil and gas production potential. Chevron's reserve replacement ratio over the past decade has averaged 88%. However, its organic replacement ratio, excluding acquisitions and sales, was only 45%. This ratio below 100% suggests that the company has struggled to replace depleting reserves.

Hess Acquisition

The acquisition of Hess would provide Chevron with a stake in the highly lucrative Guyana oilfields, operated by its rival Exxon. However, Exxon and CNOOC, minority partners in the field, have filed lawsuits to block the deal, claiming they have first refusal rights over Hess's equity.

Declining Reserves

Chevron's reserves declined from 11.1 billion barrels of oil equivalent (BOE) in 2023 to 9.8 billion BOE by 2024, partly due to acreage sales. Analyst Paul Cheng of Scotiabank notes that the low replacement ratio raises concerns about the company's long-term outlook.

Exxon's Challenges

Exxon, the largest U.S. oil producer, has also faced reserve replacement challenges in recent years. Cheng suggests that this may have influenced its decision to acquire Pioneer Natural Resources, making it the top producer in the Permian Basin. Exxon's replacement ratio for 2024 is yet to be reported.

Comparison to Peers

Unlike Chevron and Exxon, Shell and TotalEnergies have maintained average reserve replacement ratios above 100% over the past three years. This highlights the contrast in their respective approaches to reserve management.

Chevron's Outlook

Chevron's CEO, Mike Wirth, has emphasized the company's focus on developing high-quality oil and gas assets. The Hess acquisition, if completed, could significantly enhance Chevron's resource base by adding over 11 billion BOE of recoverable resources in Guyana. However, the outcome of the legal challenges remains uncertain, potentially impacting Chevron's long-term prospects.