WSJ / Chevron’s $53 Billion Deal for Hess in Jeopardy on Possible Exxon Challenge .............................
WSJ
Feb. 26, 2024
Chevron’s $53 Billion Deal for Hess in Jeopardy on Possible Exxon Challenge
Exxon says it could pre-emptively match the price Chevron offered Hess for its 30% stake in a booming oil prospect off Guyana’s coast
By Collin Eaton
Chevron warned investors Monday that Exxon Mobil and China’s Cnooc are asserting they have a right to pre-empt the company’s bid for a stake in a prolific oil project off Guyana, an emerging dispute that could derail Chevron’s megadeal for Hess.
Chevron said in a regulatory filing that Exxon and Cnooc say they have the right to counter Chevron’s offer for Hess’s stake in the Guyana project, which Exxon operates and is one of the largest oil finds in years. Chevron warned investors it may not complete its purchase of Hess “within the time frame the company anticipates or at all.”
Much of the value in Chevron’s $53 billion all-stock acquisition of Hess proposed last year was tied to the smaller New York oil company’s 30% stake in an Exxon-led drilling consortium in Guyanese waters. The partnership has expanded oil production far faster than most offshore oil projects and expects to pump over 1 million barrels a day in coming years.
The development is a potential blow to Chevron’s largest acquisition in years, though it isn’t clear if Exxon and Cnooc will make a counteroffer. At this point, they are only asserting their right to do so.
Chevron spokesman Braden Reddall said Chevron and Hess don’t believe a right-of-first refusal applies to the Hess deal. Chevron said the companies have engaged in “constructive discussions,” and though Chevron said the deal might fall apart, it believes the talks will “result in an outcome” that wouldn’t delay or prevent the deal.
“We are fully committed to the transaction,” Reddall said. “There is no possible scenario in which Exxon or CNOOC could acquire Hess’ interest in Guyana as a result of the Chevron-Hess transaction.”
If the talks fall apart, Chevron said in a regulatory filing, it or Hess could choose to have Hess’s Guyana subsidiary pursue arbitration. A Hess spokeswoman referred inquiries to Chevron, and Cnooc didn’t immediately respond to a request for comment.
The dispute boils down to the terms of a joint operating agreement, or JOA, signed more than a decade ago, which governs the consortium. Hess had entered the JOA in 2014 when it purchased its stake from Shell. Some JOAs allow existing partners, like Exxon, to participate in ownership changes, and pre-empt an offer for an ownership stake with an offer of their own.
Exxon spokeswoman Emily Mir said the conversations with Hess and Chevron are set to continue, and that the company is working with the Guyanese government on the matter.
“We owe it to our investors and partners to consider our pre-emption rights,” Mir said. Exxon is trying “to ensure we preserve our right to realize the significant value we’ve created” in Guyana. Exxon didn’t say whether it will make its own offer for Hess’s stake.
The exact terms of the JOA weren’t immediately clear, including whether pre-emption rights exist or whether Chevron or others would have the right to make another offer.
Exxon has a 45% share in the Guyana oil project and Cnooc owns the remaining 25%.
The clash with Exxon is a setback for Chevron Chief Executive Mike Wirth, who late last year disclosed delays and cost overruns for a massive oil project in Kazakhstan, as well as shareholder returns that have recently underperformed rival Exxon.
The California oil giant’s attempt to join the jungle-covered South American country’s oil boom has coincided with a retreat by the American oil majors to the Western Hemisphere as global conflicts abound. Exxon lost its stake in a major Russian project following the Ukraine war.
Exxon and Chevron have sold off billions of assets in Asia and Africa in recent years, underscoring the growing importance of the U.S. shale plays and South America. Chevron last year began pumping oil in Venezuela again as the Biden administration eased sanctions. It helped to restore production there to faster growth than the market anticipated. It also is investing in Argentina’s shale and is exploring for oil and gas off Suriname, near Guyana.
In recent months, Venezuela’s Nicholas Maduro has escalated its military presence near its border with Guyana, a country of 800,000 with little means of defense. Satellite images that became public this month showed light tanks, missile-equipped patrol boats and armored carriers near Venezuela’s border. Analysts said an invasion is unlikely.
Exxon has assumed the lion’s share of the risk in the Guyana project, drilling there for years before large amounts of oil were discovered. Exxon and its partners continue to drill for additional oil finds, and the project’s value could increase substantially. Exxon currently estimates the Guyana project to house nearly 11 billion barrels of oil and gas.
Exxon fired up a new Guyana offshore development in November, boosting output by 220,000 barrels a day to a record in the fourth quarter. The company is planning to have half-a-dozen oil projects pumping crude off Guyana by the end of 2027, with production climbing to about 1.2 million barrels a day.
Write to Collin Eaton at collin.eaton@wsj.com
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