Analysis-Exxon’s curveball move in Guyana alters Chevron-Hess deal prospects

By Thomson Reuters Feb 28, 2024 | 5:06 AM

By Sabrina Valle

HOUSTON (Reuters) – Exxon Mobil’s surprise challenge to Chevron’s acquisition of Hess through a dispute over a stake in a major Guyana oil field could prove fruitful for the U.S. oil giant, even if it does not end up enlarging its holdings in the South American country.

Exxon said on Monday it may exercise pre-emptive rights that could block Chevron from acquiring a 30% stake in a giant Guyana oil block, the centerpiece of its rival’s $53 billion deal to buy Hess.

The largest U.S. oil producer’s aim could be to get Chevron to raise 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 and investors said.

The two largest U.S. oil producers are both rivals and partners in projects around the world.

Exxon is “very possibly looking to extract a pound of flesh from Chevron to support the deal proceeding,” MKP Advisors said in a note. “It is very possible they want greater commitments from Chevron than Hess has previously signed up to.”

The companies are in talks over Exxon’s claim, and their contrasting views left analysts debating a wide array of potential outcomes, from Chevron’s proposed acquisition of Hess closing as scheduled in mid-2024, to the deal falling apart or even to Exxon buying Hess.

“It’s impossible to say if Chevron’s lawyers or Exxon’s lawyers are correct,” said Stewart Glickman, energy equity analyst at CFRA Research.

Exxon operates all production in Guyana with a 45% stake in the consortium and Hess and China’s CNOOC as its minority partners.

Exxon and CNOOC believe the right of first refusal applies, the U.S oil producer said in a statement, as they owed it to their investors and partners “to realize the significant value we’ve created and are entitled to in the Guyana asset.”

CNOOC did not respond to a request for comment.

Chevron and Hess said the pre-emptive right does not apply, since their deal involves the merging 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 it remained committed to the transaction and still expected it to close by mid-year.

Exxon, Hess and CNOOC aim to double production capacity to more than 1.2 million barrels of oil and gas per day from Guyana by 2027. Exxon is already the largest foreign oil company in Guyana and the Hess stake, if pre-empted, would make it even more dominant.

Hess shares dropped more than 3% on Tuesday to $145.32 and Chevron more than 1% to $152.16, after also closing lower on Monday.


Chevron’s acquisition of Hess was treated as a matter of course rather than contentious last week at an energy conference in Guyana’s capital, Georgetown, where attendees included dozens of executives from Exxon, Hess, CNOOC and representatives from the Guyanese government.

Guyana is actively trying to attract other oil producers and developers to the country to reduce Exxon’s dominance in the country, the country’s Vice President Bharrat Jagdeo told Reuters last week.

He said he was looking forward to have the two top U.S. producers with “deep pockets” – Exxon and Chevron – working together to “accelerate production” in the country.

Exxon also must weigh 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 thwarting business partner Hess’s sale of itself to Chevron might look bad.

“It’d make it harder for them to have future partners if they’re not allowing non-operating owners to ultimately sell their company to somebody who really wants to be a willing buyer,” he said.

If Exxon were to stop Chevron from buying Hess and wanted to obtain Hess or its holdings itself, it would also the face the tough task of convincing patriarch John Hess that he should sell to the company that just blew up the deal seen as his legacy.

Bill Smead, founder and chair of Smead Capital Management, said he believed the dust-up would be resolved because the oil companies were ultimately on the same team as they battled environmental groups looking to stop fossil fuel investments.

“They can get into a fist fight but I think they will settle and then go grab a beer,” he said.

(Reporting by Sabrina Valle in Houston; additional reporting by Ron Bousso in London; Editing by Peter Henderson and Jamie Freed)