Chevron’s $53 Billion Acquisition Will Create an Oil Industry Giant — Could Gas Prices Rise?

For the second time this month, the oil and gas industry has witnessed a major merger between two leading companies — this one involving Chevron’s proposed buyout of Hess for $53 billion. That deal, announced on Oct. 23, followed ExxonMobil’s Oct. 11 announcement to acquire Pioneer Natural Resources for $59.5 billion.

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Both deals are expected to bolster fossil fuel production, though it’s unclear exactly how that will impact gasoline prices for consumers.

Chevron and Exxon should “add years of oil and gas production” to their portfolios thanks to the buyouts, Reuters reported. Chevron’s shale output is expected to increase by 40% to 1.3 million barrels per day, putting it “neck and neck” with Exxon’s projected shale output following its Pioneer buyout. Chevron should also see more production “in less risky” regions by bolstering its output in the U.S. Gulf of Mexico and by putting it into North Dakota’s Bakken shale.

In addition, the Hess acquisition gives Chevron 30% ownership of more than 11 billion barrels-equivalent of recoverable resources in Guyana, Yahoo Finance reported. Guyana is on track to produce than 1 million barrels a day by 2026.

“This combination positions Chevron to strengthen our long-term performance and further enhance our advantaged portfolio by adding world-class assets,” Chevron chairman and CEO Mike Wirth said in a news release. “Importantly, our two companies have similar values and cultures, with a focus on operating safely and with integrity, attracting and developing the best people, making positive contributions to our communities and delivering higher returns and lower carbon.”

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Lower Carbon Claim: Legitimate?

The “lower carbon” claim could be open to question, considering that the Hess buyout means Chevron is “doubling down” on fossil fuel demand for years to come, as Yahoo Finance put it.

“With this deal, Chevron is betting on the failure of the Paris Climate Agreement,” Mark van Baal — founder of Follow This, an activist shareholder group — told Yahoo Finance. “Big Oil needs to change or Paris will fail.”

Although the transition to renewable energy and electric vehicles is already taking place, it likely won’t happen as quickly as some might have hoped, according to Wells Fargo senior energy analyst Roger Read.

“It’s going to be a lot longer,” Read told Yahoo Finance. “It’s going to be a lot tougher. It’s going to be a lot more expensive.”

Hess CEO John Hess offered a similar take this week, telling CNBC on Monday that oil and gas “are going to be needed for decades to come.”

How Will Oil Industry Mergers Affect Gas Prices?

So how will all this affect prices at the pump? That’s hard to say. Typically, industry consolidation through mega-mergers leads to less competition, which can push prices higher. That’s why government regulators keep a close watch on mergers. But gas prices tend to be much more influenced by factors that can influence oil supplies, ranging from geopolitical tensions to the weather.

So far, there hasn’t been much media focus on the Chevron-Hess deal’s potential impact on gas prices — and little on the internet detailing how M&A activity influences prices.

A 2004 report from the U.S. Government Accountability Office found that oil industry mergers and increased market concentration “generally led to higher wholesale gasoline prices” during the latter half of the 1990s, although prices “sometimes decreased.”

Six of the eight mergers the GAO modeled resulted in wholesale price increases of about 2 cents per gallon, on average. Two of the mergers led to decreases of about 1 cent per gallon, on average.

For now, prices at the pump are trending lower. The average price for a gallon of gas was $3.541 as of Oct. 25, according to AAA. That’s down from $3.575 a week ago, $3.849 a month ago and $3.775 a year ago.

This article originally appeared on GOBankingRates.com: Chevron’s $53 Billion Acquisition Will Create an Oil Industry Giant — Could Gas Prices Rise?