ExxonMobil files arbitration case for Guyanese oil field rights in blow to Chevron-Hess merger
(Bloomberg) – Exxon Mobil Corp. filed for arbitration to retain pre-emption rights in a giant Guyanese oil field, threatening Chevron Corp.’s attempt to acquire a stake via its pending $53 billion takeover of Hess Corp.
Exxon filed for arbitration in the International Chamber of Commerce in Paris on Wednesday, Senior Vice President Neil Chapman said during a Morgan Stanley conference. Exxon, as 45% owner and operator of the Guyana project, believes it has a right of first refusal over any change of hands in Hess’ 30% stake and would consider matching Chevron’s valuation, he said.
Exxon’s move is a blow not only to Chevron and Hess, but also to several hedge funds wagering billions in arbitrage bets pegged to the deal’s closing. The ICC filing represents a major escalation in the unprecedented public dispute between America’s biggest oil drillers over the world’s fastest-growing major crude development.
Chevron’s deal to buy Hess amounts to a circumvention of Exxon’s pre-emption rights, Chapman said. While the joint-operating agreement with Hess and other partners in Guyana is confidential, Exxon is “very, very confident” in its position, he said.
“We understand the intent of this language of the whole contract because we wrote it,” Chapman said. “The Chevron-Hess transaction, what it really did, is it attempted to circumvent the commercial purpose” of the agreement.
Chevron is “fully committed” to the Hess deal and is confident in its position, the company said in a statement. “We look forward to closing the transaction on the terms we’ve agreed.” Hess didn’t immediately respond to requests for comment.
Guyana’s Stabroek block is the main reason why Chevron wants to buy Hess, and the California-based oil giant has said it would cancel the entire deal if the company’s stake was not included in transaction.
Hess shares fell as much as 2.5% on the news. Chevron pared earlier gains and was down 0.4% at 2:48 p.m. in New York.
Spreads between the shares of Chevron and Hess, which agreed to the all-stock deal in October, have also been roiled by Venezuela’s repeated claims to two-thirds of Guyana’s territory, threatening the South American country’s oil fields.
Arbitration at the ICC typically takes months, Chapman said. Previously, Chevron had been expected to close the deal by the middle of this year. Hess would pay Chevron a break-up fee of about $1.7 billion if the transaction falls apart.
There’s little possibility of Exxon immediately buying Hess’ stake in the Guyana field given that Chevron would cancel the deal if it lost at arbitration. But Chapman did not rule out buying it in the future.
“The pre-emption rights are to give us the opportunity to look at the value, which we can then match if we choose to do so,” he said.
