Chevron-Hess Merger Faces Uncertainty Amid Dispute Over Guyana Oil Assets

Hess shares took a hit on Tuesday following Chevron’s caution to investors about a disagreement with Exxon Mobil and China National Offshore Oil Corp. (CNOOC) concerning Guyana’s offshore oil assets, which could imperil its bid to purchase the company.

During morning trading on Tuesday, Hess experienced a nearly 3% decline, while Chevron shares dipped close to 2%.

“Chevron had previously struck a deal to buy out Hess for $53 billion in an all-stock arrangement back in October, aiming to establish a presence in Guyana’s extensive offshore oil reserves.”

“Hess holds a 30% interest in a partnership with Exxon and CNOOC dedicated to developing Guyana’s Stabroek oil block, estimated to contain over 11 billion barrels of oil equivalent.”

Hess shares drop 3%
Hess shares drop 3% after Chevron warns of acquisition jeopardy. (Credits: Google Finance)

“However, Chevron alerted investors in a filing on Monday that Exxon and CNOOC are asserting a preemptive right to acquire Hess’ share in Guyana’s assets under a joint operating agreement in the event of the transaction’s closure.”

Chevron expressed concerns that Exxon and CNOOC’s assertions could impede or entirely derail its acquisition of Hess. According to the filing, if this scenario unfolds and the merger falls through, Hess would persist as an independent entity and maintain its stake in Guyana’s assets.

“Chevron stated in the filing that it disputes the applicability of the joint operating agreement to its acquisition of Hess. The oil giant is currently engaged in discussions with Exxon and CNOOC to address the dispute.”

“We owe it to our investors and partners to evaluate our preemptive rights outlined in our Joint Operating Agreement to ensure we safeguard our entitlement to realize the substantial value we’ve contributed to and are entitled to in the Guyana asset,” stated Exxon in a Monday statement.

Hess's Guyana assets.
Analyst doubts Exxon, CNOOC will acquire Hess’s Guyana assets.

Neal Dingmann, an analyst at Truist, shared on CNBC’s “Squawk Box” on Tuesday that it’s improbable for Exxon and CNOOC to acquire Hess’ Guyana assets.

“I believe either the transaction will proceed as planned or Hess will retain ownership,” Dingmann remarked. “I find it hard to believe that Chevron’s legal team would have proceeded if there were any doubts about the conversion of these preemptive rights,” he added.

“Dingmann suggested that Exxon and CNOOC might receive a settlement payout to resolve the dispute. “I’m confident there’s room for negotiation,” the analyst remarked.”

“The discord with Exxon and CNOOC marks the most recent obstacle facing Chevron’s endeavor to acquire Hess. In December, the Federal Trade Commission requested additional information on the deal, indicating scrutiny by federal regulators due to potential competition concerns.”

Sajda Parveen
Sajda Parveen
Sajda Praveen is a market expert. She has over 6 years of experience in the field and she shares her expertise with readers. You can reach out to her at [email protected]
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