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ExxonMobil and Chevron clash over Guyana’s oil riches – Argus

Exxon and Chevron must decide whether they are more enemies than ‘frenemies’ -FT
Exxon and Chevron must decide whether they are more enemies than ‘frenemies’ -FT

Stephen Cunningham, Argus

NEW YORK
Energiesnet.com 03 05 2024

The race to develop Guyana’s coveted oil riches has put the top two US majors at loggerheads in a sign of the huge long-term value the asset appears set to yield.

ExxonMobil is considering its right of first refusal over the 30pc stake in the giant offshore Stabroek block held by Hess, a move that threatens to derail Chevron’s $53bn blockbuster deal for the US independent producer. Chevron fired back that the pre-emption provision does not apply in this case because of the structure of the merger and the language used, and said it remains committed to closing the Hess takeover around the middle of this year.

Both sides are in talks to resolve the spat, which comes as Guyana, home to the world’s largest discovery of the past decade, and currently producing 640,000 b/d, is in the early throes of an oil boom set to transform the tiny nation’s economic fortunes. Rising supplies from Guyana — in addition to the US and Brazil — are also putting pressure on Opec to keep output lower for longer in order to prop up oil prices. They have attracted the unwanted attention of neighbouring Venezuela, which has ratcheted up a long-running border dispute with Guyana.

The disagreement between the US majors underscores the intense competition to share in the spoils of an estimated 11bn bl of gross recoverable resources discovered off Guyana since 2015. ExxonMobil, the operator of the Stabroek block with a 45pc stake, aims to double production from Guyana to 1.2mn b/d by 2027, an eye-watering statistic given output was zero in 2019. Chinese state-controlled CNOOC is the remaining partner with a 25pc interest.

Legal experts not involved in the case expressed surprise that any confusion over pre-emption rights was not cleared up from the start. For the time being, most analysts are still betting the Chevron-Hess deal will go ahead, even if it takes longer than initially expected. The closing had already been delayed by a request for extra information from US anti-trust regulator the FTC. “We still believe the deal is finalised, potentially with some delay,” US investment bank Cowen analyst Jason Gabelman says. “The alternative, lower probability outcome could be a deal failure, in which Hess would remain independent.”

‘World-class’ setback

The simmering row marks a potential setback for Chevron, which made no secret that the prized Guyanese stake was the key driver of the Hess deal when the takeover was announced in October. At the time, Chervron chief executive Mike Wirth hailed Stabroek as a “world-class” asset and the company applauded its industry-leading cash margins and low-carbon intensity output that were expected to deliver production growth into the next decade.

Chevron’s bid for Hess and its Guyana bounty comes just as the firm is getting back on track after a series of setbacks in the past year — from further cost over-runs and delays at its flagship Tengizchevroil expansion project in Kazakhstan, to snags in its Permian drilling programme. Both US majors have scaled back their international footprint in recent years, preferring to focus on more stable regulatory regimes closer to home as well as reduce exposure to growing geopolitical risk. That has led to renewed attention on US shale as well as Guyana.

Chevron has warned that the deal would not close if the talks do not break the deadlock and potential arbitration fails. The company is adamant that there is no “possible scenario” in which ExxonMobil or CNOOC could take over Hess’ interest in Guyana as a result of its pending acquisition. ExxonMobil argues that the firm owes it to its investors and partners to consider pre-emption rights in place to “ensure we preserve our right to realise the significant value we’ve created and are entitled to in the Guyana asset”.

argusmedia.com 03 04 2024

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