Chevron claims its $US53 billion takeover of Hess deal is being threatened by ExxonMobil and China National Offshore Oil Corporation (CNOOC) because they have the first right of refusal over the key Hess asset, a share of one of the hottest oil finds in the world over the past decade.
Chevron claimed in its 2023 annual report filed on Monday that Exxon and CNOOC are asserting their first right of refusal over the asset, which is offshore Guyana and responsible for the rapid growth in output from that country in the past couple of years.
These rights are sometimes called "change of control" provisions and give the other shareholders the first right to buy the stake singularly or in cooperation. If they do not want to buy, then the outside party can bid – sometimes the existing partners have a right to reject that price if they feel it is too low and will force them to cut the value of their holdings.
The block is the key asset in Chevron’s bid for Hess, and the two shareholders are not being nice to Chevron and 'rolling over' on the first right of refusal.
Exxon owns 45% of the Stabroek project (and is also the operator). CNOOC owns 25% with Hess holding the 30% that Chevron wants.
Chevron said in its filing with the SEC that it had been “engaged in discussions” with Exxon and CNOOC — joint owners of the Stabroek Block project — “regarding a right of first refusal provision in the joint operating agreement” for the development.
"If these discussions do not result in an acceptable resolution and arbitration (if pursued) does not result in a confirmation that such a right of first refusal provision is inapplicable to the merger, then there would be a failure of a closing condition under the Merger Agreement, in which case the merger would not close,” Chevron said in the annual report.
The Guyana project is the biggest oil find globally in the past decade and along with high US production, is adding enough oil to global markets to soften the impact of the production caps imposed by Saudi Arabia and Russia.
It is also why financially broke Venezuela is trying to pressure Guyana into giving up some or all of the asset by claiming (with no evidence) the block and others offshore are in Venezuela.
An Exxon-led consortium made the first discovery off its coast in 2015, and in the 8 years since, the group has made more than 30 more such discoveries in the area.
In a statement on Monday, Exxon said it was “engaged in conversations with Hess and Chevron and those conversations will continue”. “We owe it to our investors and partners to consider our pre-emption rights in place under our Joint Operating Agreement to ensure we preserve our right to realize the significant value we’ve created and are entitled to in the Guyana asset,” it added.
Shares in Hess fell 4% in after-hours trading on Monday after the filing, while Chevron’s dropped 1%.
Guyana’s reserves in the one block are estimated at 11 billion barrels of gross recoverable resources. There are similar highly prospective exploration areas in the same region.
A Chevron spokesperson claimed to media on Monday that both it and Hess did not believe the first right of refusal applied to the deal.
Chevron said in its described filing, “there is no possible scenario in which Exxon or CNOOC could acquire Hess’ interest in Guyana as a result of the Chevron-Hess transaction”.
Now it’s up to Exxon and CNOOC to provide their side and clarify just what is in the joint venture agreement and whether there is a first right of refusal or something similar.
If there is, then Hess’s share price will go south at a fast rate of knots, and Chevron will not escape pain, especially from shareholders (including Warren Buffett’s Berkshire Hathaway) who would want to know why the first right of refusal factor wasn’t sorted out before the Hess bid was formalized.
In fact, you’d be entitled to think that a big company like Chevron and all the high-priced lawyers and bankers involved in the deal would have known the smallest details of the Guyana block agreement with Exxon and CNOOC.
