Hess investors to benefit from multi-billion dollar merger with Chevron at the expense of a lopsided deal that shafts Guyanese – Int’l Body

Oct 29, 2023 ExxonMobil, News, Oil & Gas

---

Kaieteur News – The global oil industry has been abuzz since last week when U.S. giant Chevron announced its US$53B takeover of Hess Corporation, a move supported by the Guyana Government. This significant acquisition will leave Chevron to assume Hess’s 30% stake in the lucrative Stabroek Block, rich with 11 billion barrels of oil equivalent resources.

However, the takeover has been met with a spectrum of reactions. Key industry watchdog, the Institute for Energy Economics and Financial Analysis (IEEFA), articulates a contrasting view. The US-based think-tank argued that the colossal deal primarily serves Hess’s shareholders, leaving the Guyanese populace grappling with the less favourable terms of the Stabroek Block deal.

In many of its analytical reviews, IEEFA has placed the spotlight on many troubling loopholes in the 2016 Stabroek Block agreement between Guyana and energy titans Hess, Exxon, and CNOOC Petroleum Guyana Limited (a China National Offshore Oil Corporation subsidiary). IEEFA experts have persistently critiqued the arrangement, contending that Guyana’s acceptance of a modest two percent royalty constitutes a raw deal for the country.

The IEEFA has also criticized the Guyana government’s reluctance to rectify contractual loopholes that allow Exxon expansive fiscal liberties. In a comprehensive report, IEEFA had lambasted Guyanese authorities for refusing to close a loophole which allows Exxon to lump expenses for projects spread across the expansive 6.6 million acres Stabroek Block and charge them against the profits made from two producing projects in the same concession. Like many local stakeholders, IEEFA has advocated that the implementation of a “ring-fencing provision” could ensure that each project pays for itself in the Stabroek Block.

Considering the numerous loopholes for revenue leakage that characterize the Stabroek Block Production Sharing Agreement, allowing Exxon and partners to consume the lion’s share of Guyana’s oil resources, IEEFA said Chevron was gunning for a piece of the action.

“The crown jewel of the deal is a Hess partnership in a massive Guyana offshore oil project. The South American country’s share of offshore profits is sealed with a contract that is one-sided in favor of the companies. During contract negotiations with ExxonMobil, Hess, and the China National Offshore Oil Co. (CNOOC), Guyanese officials clearly gave away the store,” IEEFA said in a statement issued two days ago.

The U.S. think tank said Guyana is once again poised to allow another oil company to benefit from the lopsided deal.

“Hess shareholders will have a nice payday and the people of Guyana will likely receive a tiny pay envelope. According to the existing contract, Guyana may get US$100,000 for the (reassignment of the Hess interest in the Stabroek Block to Chevron),” IEEFA said, adding that such a sum would only be paid if the takeover is considered as a reassignment. “We do not know how all the lawyers, or the government and corporate leaders, will interpret the contract,” the organization said.

Unfortunately, IEEFA said the Guyana Government’s track record in dealing with Exxon does not give much hope that it will push to claw back more benefits from the Chevron-Hess merger.

“We have seen that ExxonMobil, the lead operator for the (Stabroek Block) has walked all over the country to avoid its clean-up obligations.” Expounding on the clean-up costs, IEEFA said this has to do with decommissioning of oil projects. Decommissioning in the oil sector refers to the process of safely shutting down and removing oil and gas facilities once they have reached the end of their operational lives. This includes dismantling structures, plugging wells, and restoring the environment to its previous state.

In this regard, IEEFA said Guyana is paying the oil companies USD$3.2 billion out of its current oil profits to ensure the wells and related infrastructure developed as part of the Liza Phase One Project is properly decommissioned in 20 years. The institution said this represents 100% of expected costs.

“There is no provision to ensure that the money is set aside by the oil companies so that it is actually available in 20 years. This runs against industry standards. ExxonMobil and its oil partners have a real opportunity to pocket millions, if not billions, with no accountability. If they take the money, sell the project before the wells are decommissioned, and pass the liability onto a weaker company, Guyana’s taxpayers will be left footing the bill,” the institution pointed out.

Citing another national embarrassment, IEEFA said Guyanese authorities mishandled an audit into Exxon’s expenses totalling US$1.6B and incurred from 1999 to 2017. Auditors had said there was over US$214M in questionable spending but back-door talks saw the costs being reduced to US$3M. When the local media exposed this, it was only then that a probe was launched and government officials clarified that they will stick by the US$214M that was flagged in a report compiled by British consultancy group, HIS Markit.

“So imagine, a simple matter like an audit has been turned into a complete disaster because of incompetence,” IEEFA commented. The US think tank said it remains to be seen if Chevron will be a better partner because they have deeper pockets than Hess.

Chevron had said on Monday that it is buying out all the outstanding shares at Hess Corporation for US$53 billion, or US$171 per share. During a call with its shareholders, Chevron dubbed the Stabroek Block as “an extraordinary asset with industry leading cash margins and low carbon intensity that is expected to deliver production growth into the next decade.”

As a result of this deal, Chevron said it intends to recommend an increase to its first quarter dividend per share of 8% to US$1.63, which will be subject to the approval of the Chevron Board of Directors. It also plans to increase share repurchases by US$2.5 billion to the top end of its guidance range of US$20 billion per year in a continued upside oil price scenario.

In the Stabroek Block which stretches a massive 6.6 million acres, ExxonMobil is the operator with a 45 percent working interest while China National Offshore Oil Corporation (CNOOC) holds 25 percent. Since oil production commenced in December 2019 at the Stabroek Block’s Liza Phase One Project, Exxon successfully started another, the Liza Phase Two, in February 2022. Both projects are producing about 400,000 barrels of oil per day. Exxon and partners are also targeting over 1.2 million barrels of oil by 2027, making Guyana’s Stabroek Block, one of the world’s fastest-ever oil development hotspots.

---

• articulates, billion, Chevron, Energy Economics and Financial Analysis (IEEFA), Hess

---