US oil company Hess is reviewing the timeline for the closing of a takeover deal by Chevron after compatriot oil major Exxon claimed that there might be a counteroffer for Hess’ Guyana assets.
In Guyana, Hess has a 30% ownership in more than 11bn barrels of oil equivalent discovered recoverable resource with high cash margins per barrel, strong production growth outlook, and potential exploration upside. Collectively, over $40 billion worth of investments have been sanctioned for development, which would help take Guyana’s installed oil production capacity to over 1m bpd.
Hess’ share of gross crude oil volumes in Guyana will grow from the current 120,000 bpd to over 360,000 bpd in 2030 and to over 550,000 bpd in 2035 as the FPSOs start producing. What Hess has in Guyana is the feather in its cap and Chevron’s main target since the Stabroek block is considered the largest oil discovery in decades.
Along with the possibility of a counteroffer for the Stabroek assets, ExxonMobil filed a contract arbitration claim related to Hess’ proposed sale of the entire company – and with it its Guyana oil properties – to Chevron.
Exxon believes that it has the right to evaluate making a bid for Hess’ 30% stake in the Stabroek offshore oil block if Chevron proceeds with the $53bn Hess buy. Hess claimed that Exxon’s interpretation of the agreement was not correct and that, in the case of arbitration, it would likely win.
However, some analysts claimed that the bid by Chevron for Hess was an attempt to circumvent the agreement between the partners in the Stabroek block. The arbitration request by Exxon could even have a positive outcome for the company even if it does not take over Hess’ assets but just throws the merger discussions off course.
But what the arbitration also does is provide more time for Exxon to prevent the sale of Hess’ Guyana assets to Chevron, in one way or another. The acquisition was already slowed down by the US Federal Trade Commission which is asking for more information on the merger. That meant that, even without Exxon’s arbitration, the closing of the buy would not happen before the middle of the year. Exxon taking this to court could extend it further.
There is a downside if the dispute between Chevron, Exxon, and Hess completely stops the takeover arrangement. Namely, Hess could be liable for a $1.7bn breakup fee if the deal falls apart. At the same time, Exxon is working on another takeover in parallel with the attempt to buy Hess’ Guyana stake. Currently, it is working on closing the $60bn acquisition of Pioneer Natural.
