Secret value of Exclusive-Hess Guyana becomes part of Exxon arbitration, sources say By Reuters

By Sabrina Valle

(Reuters) – An arbitration panel to decide a high-profile clash between ExxonMobil (NYSE: ) and Chevron (NYSE: ) will look into the secret value of Hess’s (NYSE: ) oil riches in Guyana, four people familiar with the matter said.

Chevron offered last October to pay $53 billion for Hess, one of the two biggest deals in the biggest wave of oil industry consolidation in decades. Chevron’s most coveted asset in the takeover is Hess’ stake in a Guyana field operated by top US rival Exxon.

Exxon and China’s CNOOC (NYSE: ) , another company partner, contested the deal, claiming a first contractual right to buy Hess’ stake in the field, a matter to be decided by a three-person arbitration panel .

Convincing the panel to consider appraised value is central to Exxon’s contention that the deal is an asset purchase disguised as a merger. Exxon considers the Guyana asset so valuable that the merger would trigger a change in control and give Exxon and CNOOC a right of first refusal on the sale of the assets, the people said.

On the other hand, Chevron and Hess do not believe that Guyana’s assessment will have any influence on the contractual arbitration panel’s view. Their position is that Exxon’s right does not apply because there is no change in Hess’ control of its Guyana facility, people familiar with their thinking said.

The review can be a critical and lengthy step in change-of-control disputes, said Christopher B. Strong, vice president of the trade group Association of International Energy Negotiators (AIEN) and a partner at the law firm Vinson & Elkins, who worked for Exxon. . .

The prize in the tender is Hess’s 30% stake in the Stabroek offshore Guyana joint venture, with approximately 11.6 billion barrels of oil and gas discovered so far. The consortium, which includes Exxon with a 45 percent stake and CNOOC with 25 percent, operates all of Guyana’s output and earned $6.33 billion in profit last year by pumping 137 million barrels of oil. This production is expected to triple by 2027.

Exxon CEO Darren Woods told Reuters earlier this year that he would consider a counterbid for all or part of Hess Guyana’s stake, but only after the arbitration panel accepts its first-right claim and a price has been set.

Woods’ position remains unchanged, people familiar with his thinking said this month. Wall Street analysts estimate that Hess Guyana represents about 70 percent of Chevron’s $53 billion bid.

NO COMPROMISE

The case depends on whether there will be a change of control in Hess Guyana. The deal is structured so that Hess will remain intact and become an affiliate of Chevron, the two companies said.

“Exxon and CNOOC continue to ignore the plain language of the operating agreement, and Chevron and Hess remain confident that arbitration will confirm that the Stabroek ROFR (right of first refusal) does not apply to the merger,” the companies said in response to Reuters questions.

Chevron CEO Michael Wirth recently dismissed the chance of any compromise with Exxon and CNOOC. The companies held talks earlier this year, but stalled when Exxon filed for arbitration.

“It doesn’t look like (a compromise) is going to come to that,” Wirth said on Aug. 2.

However, if the panel accepts the right of first refusal that applies, Hess said it would not sell its Guyana stake to Exxon or CNOOC. Hess will remain independent if the Chevron deal is canceled, CEO John Hess said earlier this year.

PRESSURE ON THE CHEVRON

Chevron could use a boost Guyana. Its profits have fallen in the past six quarters year-over-year. Its share price has fallen 8.7% over the past 52 weeks, compared with a 7.7% rise at rival Exxon.

In May, Exxon completed its $60 billion acquisition of America’s leading shale oil producer Pioneer Natural Resources (NYSE: ), which was the biggest acquisition in the last wave of consolidation. The deal helped Exxon earn $9.24 billion in revenue in the second quarter, more than twice Chevron’s profit for the same period.

“(Exxon) is in the best shape we’ve seen in 20, 25 years. It’s put itself in a remarkable position,” said oil analyst Paul Sankey.

Meanwhile, Chevron’s CEO is shaking up the company, replacing lieutenants and moving the company’s headquarters to Texas from California. Wirth also aims to raise up to $15 billion from asset sales after the Hess deal closes.

He had hoped to close the deal in the first half of 2024, and the delay is blocking Chevron’s ability to achieve cost savings, personnel and operational synergies, in addition to slowing asset sales. Hess shareholders are missing out on Chevron’s much higher dividend payments, which have been a lure for the deal.

A shutdown in the second half of 2025 could pressure Chevron into a deal that diminishes promised benefits, analysts and investors said. But if the valuation turns out to be higher than Exxon expects, it could also make the counterbid more expensive.

“Exxon could create enough uncertainty where it’s going to be worth it for Chevron to give up some of the economics to sort this out,” said Roy Behren, co-chairman at Westchester Capital Management, which held nearly $226 million. in Hess stock at the end of June, according to LSEG.