Exxon juggles stick of dynamite near Hess deal
28/02/2024 13:00
(The author is a Reuters Breakingviews columnist. The opinions
expressed are his own.)
By Robert Cyran
NEW YORK, Feb 27 (Reuters Breakingviews) - Exxon Mobil
XOM.N and Chinese partner CNOOC 0883.HK have asserted their
right to insert dynamite into Chevron’s CVX.N $53 billion deal
for Hess HES.N . They claim the sale allows them to buy Hess’s
crown jewel, a 30% stake in a prodigious oil field off Guyana’s
coast. But for Exxon, carrying out that threat could also saddle
that company with a risky time-bomb.
The field is a gem. Exxon has a 45% stake in the offshore
oil block consortium, with CNOOC and Hess splitting the rest. It
is slated to produce 1.2 million barrels daily in 2027, and its
breakeven cost is roughly a third of Brent crude’s current
price.
The dispute centers over the partners’ right of first
refusal to bid for Hess’s stake. Chevron argues that is only
triggered if Hess sells its stake separately; Exxon and CNOOC
say a sale of Hess itself also qualifies. Chevron, which agreed
to acquire Hess in October, emphatically insists on its point of
view, yet warns that if it can’t come to terms with the other
parties or receive a favorable result in arbitration, the merger
simply will not close.
Perhaps Exxon and CNOOC want to show they take their
ownership rights in Guyana seriously, or they are trying to get
some kind of sweetener out of Chevron. Or perhaps they want to
block the deal in hopes of later buying Hess whole – or its
stake.
Exxon’s threat, though, rings somewhat hollow. The company
is already buying Pioneer Natural Resources PXD.N in a $65
billion deal, including debt. Another giant transaction might
cause financial indigestion. Bank of America analysts peg the
value of Hess’s stake at $45 billion, and point out that the
right of first refusal puts the buyer on the hook for tax on the
gains. Moreover, Exxon would be increasingly concentrated in an
asset that carries risks. Venezuela disputes its borders with
Guyana, including the area covering these oil fields. As
unlikely as it might seem, the situation could spill over. To
boot, history is full of newly oil-rich countries like Guyana
eventually trying to renegotiate contracts.
China’s crude imports hit a record last year, at over 11
million barrels per day, and the nation’s oil firms have
appetite for scale. A bigger fount in Guyana might therefore
appeal to CNOOC. But it faces many of the same hurdles as Exxon.
Both partners’ stick of dynamite might be more of a damp squib.
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CONTEXT NEWS
Chevron said in a securities filing on Feb. 26 that Exxon and
Chinese oil company CNOOC have asserted they have the right to
pre-empt Chevron’s acquisition of a stake in a giant offshore
oil field in Guyana owned by Hess. Chevron agreed to buy Hess in
October for $53 billion.
Hess owns a 30% share in a consortium to produce oil in
Guyana’s Stabroek Block, alongside Exxon, which owns a 45%
interest, and Chinese oil company CNOOC, which owns the
remaining 25%. Chevron said the four companies have been engaged
in constructive negotiations, and that “there is no possible
scenario in which Exxon or CNOOC could acquire Hess’ interest in
Guyana as a result of the Chevron-Hess transaction.”
In the event that its acquisition of Hess fails, Chevron may
be liable for a $1.7 billion breakup fee. In its disclosure,
Chevron said that an inability to resolve the situation would
lead to “a failure” of the merger agreement.
(Editing by Jonathan Guilford and Sharon Lam)
((For previous columns by the author, Reuters customers can
click on CYRAN/
robert.cyran@thomsonreuters.com; Reuters Messaging:
robert.cyran.thomsonreuters.com@reuters.net))