This week, Chevron told its investors about a bump in the road with its plan to buy into a big oil project near Guyana. The problem is Exxon Mobil and China's CNOOC say they should get the first chance to make an offer against Chevron's plan to buy Hess's part in the project. This issue could mess up Chevron's plans, making it hard or impossible to finish the deal as they hoped.
Even with this challenge, Chevron is sticking to its plan and doesn't think Exxon or CNOOC will get the stake away from them. They're all in on buying Hess's share. Meanwhile, Exxon believes it has to look at its option to buy because Hess is selling its share.
This situation is heating up because the oil field in question is a really big deal. It's one of the biggest oil finds in a long time. Chevron wanted to buy Hess's share last October for this reason. Exxon, which is in charge of the oil project, found oil there in 2015 and says there are about 11 billion barrels in the ground. They also think they can get oil out of the ground twice as fast by 2027, reaching 1.2 million barrels a day.
CNOOC has yet to comment on the issue.
“If these discussions do not result in an acceptable resolution, and arbitration (if pursued) does not result in a confirmation that such 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.
“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,” Exxon said.
The contention over the Stabroek Block in Guyana highlights the region's critical role in the global oil market. Recently, there has been a rush by major oil companies to lock in shares of proven reserves.
Chevron maintains that Exxon and CNOOC's claim to preemptive rights does not apply in the context of its merger with Hess. The company argues that under no circumstances could Exxon or CNOOC acquire Hess's interest in the Guyana project due to the Chevron-Hess transaction.
Nevertheless, Chevron has cautioned that there's still a risk the acquisition might not proceed if Exxon and CNOOC manage to present a successful counteroffer.
Story Background
The core of the issue lies in a disagreement over a Joint Operating Agreement (JOA) established more than ten years ago, which sets the rules for the consortium. Hess joined this agreement in 2014 after buying its share from Shell. In some of these agreements (one involving Exxon), current partners have the right to match any offers for a change in ownership stakes.
In the case of the Guyana oil project, Exxon owns a significant 45% stake, while CNOOC has a 25% stake.
This dispute is a challenge for Chevron and its CEO, Mike Wirth, who recently acknowledged facing delays and going over budget on a major oil project in Kazakhstan. Chevron's shareholder returns have not kept pace with those of Exxon.
Last year, Chevron resumed oil production in Venezuela as U.S. sanctions eased, boosting production more quickly than expected. Chevron is also expanding its investments in Argentina's shale and starting exploration near Guyana, off the coast of Suriname.
