ExxonMobil is trying to put a stop to Chevron Corp. and its bid to enter the lucrative Guyanese offshore oil and natural gas patch.
The company has filed for arbitration, claiming Chevron’s bid to snap up Hess Corp.’s Guyana assets goes against a contract clause that grants ExxonMobil a right of first refusal.
Last October, Chevron said it was buying Hess in an all-stock transaction valued at $53 billion. Guyana was seen as the crown jewel in the deal. Chevron CEO Craig Wirth said at the time that Guyana’s discoveries were set to “underpin further growth into the 2030s.”
The Guyana offshore consortium is led by ExxonMobil and operated by affiliate Esso Exploration and Production Guyana Ltd. with a 45% stake. Hess Guyana Exploration Ltd. holds a 30% interest, and CNOOC Petroleum Guyana Ltd. has a 25% stake.
ExxonMobil senior vice president Neil Chapman said last week at a conference that the Chevron transaction was “in their hands," but if there were a deal, “we plan to exert our preemption rights."
Chevron meanwhile remains “fully committed to the transaction, and are confident in our position. We look forward to closing the transaction on the terms we’ve agreed,” the company said in a statement.
Hess for its part believes that the right of first refusal provision “does not apply to the Chevron-Hess merger.” The company is “reviewing the timeline for legal closing,” Hess said in a statement.
Analysts are unsure as to whether ExxonMobil has legal rights to its claim, confusing matters further.
Phillip Jungwirth with BMO Capital Markets said in a note, “we'd expect arbitration to push close beyond mid-year.”
NGI’s director of strategy and research Pat Rau added, “It's certainly possible the properties have turned out to be much more lucrative than originally thought, so Exxon wants full control.”
There is also the issue of Venezuelan saber-rattling at the edge of the oil and gas region. At an energy conference in February, Guyana Vice President Bharrat Jagdeo told the audience, “I want to assure you that your investments will be safe.”
Recent reports show Venezuelan military buildup and maneuvers in waters close to Guyana’s Essequibo region. In December, Venezuela held a referendum over Essequibo and officials claimed results showed Venezuelans were in favor of annexing the region which adds up to about two-thirds of Guyana.
The Essequibo includes one of the world’s most promising offshore oil regions.
Merger Mania
Consolidation is everywhere in the U.S. old and gas business, with the big getting bigger in the most promising upstream basins.
On Monday, EQT Corp., the largest natural gas producer in the United States, agreed to buy Equitrans Midstream Corp in a $5 billion-plus deal.
Most of the action has centered around the Permian Basin. The aggregate value of mergers and acquisitions in the Permian alone surpassed $100 billion last year, eclipsing the previous record of $65 billion set in 2019, according to Wood Mackenzie.
If Chevron were to lose out in the Hess acquisition, it would be the second major deal to go south for the company in the last five years. Occidental Petroleum Corp. ended up outbidding Chevron for Anadarko Petroleum Corp. and its vast holdings in the Permian in 2019.
Meanwhile, Senate Majority Leader Chuck Schumer (D) and California Rep. Ro Khanna (D) circulated a letter last week asking the Federal Trade Commission to look further into the consolidation wave.
The letter cited ExxonMobil’s $59.5 billion acquisition of Pioneer Natural Resources Co. and Chevron’s deal with Hess.
“Many of us warned in a November letter that those two mega-deals could provoke a wave of mergers and acquisitions in the energy sector and trigger a new ‘consolidation trend’ to the detriment of industry competition and American consumers,” the letter said. “That admonition has been vindicated.”
