ExxonMobil's surprise challenge to Chevron's acquisition of Hess through a dispute over a stake in a key Guyana oil field could prove fruitful for the US oil giant, even if it doesn't end up expanding its holdings in the South American country .
Exxon said on Monday it may exercise pre-emption rights that could prevent Chevron from acquiring a 30% stake in a giant Guyanese oil block, the centerpiece of its rival's $53 billion deal to buy Hess. HES.N.
The aim of the largest US oil producer could be to get Chevron to increase its commitments to the capital-intensive Stabroek block, which contains at least 11 billion barrels of oil, or to make some other concession elsewhere, analysts said. and investors.
The two largest U.S. oil producers are rivals and partners in projects around the world.
Exxon is “quite possibly looking to extract a pound of flesh from Chevron to support the progress of the deal,” MKP Advisors said in a note. “It’s very possible they want larger commitments from Chevron than Hess previously signed.”
The companies are in negotiations over the Exxon claim, and their contrasting views have left analysts debating a wide range of potential outcomes, from Chevron's proposed acquisition of Hess, expected in mid-2024, to the deal's unraveling or even to the purchase of Hess by Exxon.
“It’s impossible to say whether Chevron or Exxon’s lawyers are correct,” said Stewart Glickman, energy stock analyst at CFRA Research.
Exxon operates all production in Guyana with a 45% stake in the consortium and China's Hess and CNOOC as its minority partners.
Exxon and CNOOC believe the right of first refusal applies, the US oil producer said in a statement, as they owed it to their investors and partners to “realize the significant value we have created and are entitled to in the Guyana asset.” .
CNOOC did not respond to a request for comment.
Chevron and Hess stated that the right of first refusal does not apply, as their agreement involves the merger of two companies, rather than the sale of the Guyana asset.
“There is no possible scenario in which Exxon or CNOOC could acquire Hess' interest in Guyana as a result of the Chevron-Hess transaction,” Chevron said, adding that it remains committed to the transaction and still expects it to be completed by mid of the year.
Exxon, Hess and CNOOC aim to double Guyana's production capacity to more than 1.2 million barrels of oil and gas per day by 2027. Exxon is already the largest foreign oil company in Guyana and Hess' participation, if anticipated , would make it even more dominant.
Hess shares fell more than 3% on Tuesday to $145.32 and Chevron shares fell more than 1% to $152.16 after also closing lower on Monday.
Exxon's reputation
Chevron's acquisition of Hess was treated as a matter of course and non-controversial last week at an energy conference in Guyana's capital, Georgetown, where attendees included dozens of executives from Exxon, Hess, CNOOC and Guyanese government representatives.
He said he is eager for the two biggest US producers with “deep pockets” – Exxon and Chevron – to work together to “accelerate production” in the country.
Exxon must also evaluate its reputation with other partners around the world.
“Exxon clearly wants the Guyana assets,” said Rob Thummel, managing director of energy investor Tortoise Capital, but blocking the sale of business partner Hess to Chevron may look bad.
“It would be harder for them to have future partners if they didn't allow non-operating owners to sell their company to someone who actually wants to be a willing buyer,” he said.
If Exxon prevented Chevron from buying Hess and wanted to obtain Hess or his holdings, it would also face the difficult task of convincing patriarch John Hess that he should sell to the company that just blew up the business seen as his legacy.
Bill Smead, founder and chairman of Smead Capital Management, said he believed the dispute would be resolved because the oil companies were ultimately on the same team as they fought environmental groups seeking to block investment in fossil fuels.
“They might fight, but I think they’ll settle down and then go have a beer,” he said.
