U.S. oil giants fight over Stabroek Block underscores its strategic importance – Int’l Analyst

Mar 14, 2024 ExxonMobil, News, Oil & Gas

Kaieteur News – The dispute by US oil majors, ExxonMobil and Chevron underscores the strategic importance of the Stabroek block and the lengths to which companies will go to secure a stake in high-potential oil assets, Dr. David Lewis Vice President of Manchester Trade and co-chair of the Caribbean Policy Consortium has said.

Dr. David Lewis VP of Manchester Trade and co-chair of the Caribbean Policy Consortium

Exxon Mobil Corporation last Wednesday said it filed a contract arbitration claim disputing Hess Corp’s proposed sale of its Guyana oil properties, and suggested it may counter Chevron Corp’s pending deal for the assets. The arbitration case seeks to preserve Exxon’s right to acquire Hess’s 30% stake in the giant Stabroek offshore oil block, Senior Vice President Neil Chapman said in a conference on Wednesday. Guyana’s Stabroek Block, which is considered the largest oil discovery in decades, is the prize in Chevron’s bid for Hess. Exxon made it clear for the first time it would bid for the Hess’s Guyana properties if Chevron proceeds with its proposed US$53 billion Hess purchase. “I don’t know if the Chevron transaction is going to proceed or not, that is in their hands,” Chapman said at a Morgan Stanley event in New York. “If there is a transaction, we plan to exert our preemption rights,” he said.

Chevron and Hess have said they believe the rights do not apply as the transaction would involve a merger with the parent company that would keep Hess’s Guyana subsidiary intact. “We remain fully committed to the transaction, and are confident in our position. We look forward to closing the transaction on the terms we’ve agreed,” Chevron spokesperson Braden Reddall said in a statement. Chevron’s bid for Hess is “an attempt to circumvent” the joint operating agreement that governs the partners’ roles in the Stabroek block, Chapman said. Exxon’s challenge could prove fruitful even if it does not end up enlarging the oil company’s holdings, analysts have said.

Lewis in a column which appeared on Troy Media said the outcome of this dispute could have significant implications for the global oil industry, particularly in the emerging basin of Guyana, which is considered vital to the crude markets. Other analysts have said that the dispute could go either way. “It is still very possible” that Exxon sees the need to bid for Hess before a Chevron-Hess shareholder vote, which could happen in the next couple of months, said Mark Kelly, CEO of financial advisory firm MKP Advisors. “Exxon has seemingly implied it really wants to own Hess’ stake in Guyana, so it potentially needs to put something competing on the table prior to a Chevron-Hess vote,” he said. Paul Sankey, an analyst with Sankey Research, said the other possibility is that Chevron is forced to pay Exxon to allow the deal to proceed. “There’s the possibility that (Chevron) cuts them a check and just says, “can you go away please? And there’s the possibility that they (Exxon) go to arbitration and delay the deal,” he said.

Meanwhile, noting that Chevron has hinted previously that without the Guyana assets, it would not be interested in Hess, Dr. Lewis said not since the 1996 “cola wars” when Coca-Cola secretly purchased Pepsi’s operations in Venezuela from the Cisneros Group have we had U.S. global corporate majors competing head to head in any market in the Americas. He said that deal of US$500 million in 1996 (US$983 million in 2023 dollars) is a standard on B-school case studies of M&A business. “Today, it is greatly overshadowed by the US$53 billion competition between ExxonMobil and Chevron for the purchase of the Hess Corp. share in the Stabroek Block in Guyana, the world’s new major oil and gas “hot spot.” Exxon Mobil operates the Stabroek Block and holds 45 percent interest. Hess holds 30 percent interest, and CNOOC from China holds the remaining 25 percent interest. Production capacity at the field is expected to reach more than 1.2 million barrels per day by the end of 2027, according to Exxon’s 2023 end-of-year report. Lewis said by industry standards, the development of this project has been remarkably efficient with the current consortium in place – making new discoveries and developing new projects at astonishing rates.

In October last year Chevron first announced it was acquiring Hess, including its share in the Stabroek, for US$53 billion. Lewis said it is fundamentally good business practice for any management team to assess their available options – especially when this kind of money is on the line. “It is simple fiduciary duty to shareholders. Much of Hess’s financial value is attributable to just how well this project has performed. As the anchor incumbent, ExxonMobil is right to consider its options before changing that balance.” Lewis however pointed out that it is curious that Exxon Mobil has taken several months to exercise its first refusal right, but such rights do not expire and are embedded in the original contract. “The potential derailment of Chevron’s ambitious acquisition underscores the intricate dynamics of global oil exploration agreements and the competitive tensions among the world’s oil giants. The resolution of this dispute will not only determine the fate of the Hess acquisition but also set a precedent for how rights of first refusal are interpreted and enforced. Ultimately, the Chevron deal may still happen. But no company would let such a prize slip away without at least having a closer look. Now, with ExxonMobil’s filing for arbitration at the International Chamber of Commerce in Paris, the matter will head to the courts.”

• Caribbean Policy Consortium, Contract, Dr. David Lewis VP, importance, Manchester Trade