A dispute over Hess Corporation’s stake in the Stabroek block off the coast of Guyana threatens to sideline Chevron Corporation from its planned acquisition of Hess, potentially locking it out of Guyana. Chevron announced the agreement with Hess Corporation in October last year, to acquire all of the outstanding shares of Hess in an all-stock transaction valued at US$53 billion. The 30% stake held by Hess in the prime Stabroek asset is a big part of the reason Chevron is pursuing the purchase.
The acquisition is a strategic move for Chevron to bolster its portfolio. Yet, there is a catch that could upend these plans—a disagreement over the right of first refusal (ROFR) clause tied to Hess’ participation in the Stabroek Joint Operating Agreement (JOA).
The disagreement is detailed in a Hess filing with the U.S. Securities Exchange Commission (SEC).
The Stabroek JOA outlines terms for the partnership between Hess, ExxonMobil and CNOOC for the exploration and development of the Stabroek block. This agreement includes a ROFR provision, essentially a contractual right that allows the parties the right to buy out the stake of one of them in the event of a ‘change of control’ transaction.
The crux of the dispute lies in the interpretation of the applicability of this provision. Chevron and Hess argue that the merger’s structure does not trigger the ROFR clause. However, Exxon and CNOOC beg to differ, insisting that the clause applies, which could force Hess to offer its stake in the Stabroek block to its partners first.
In a comment to Bloomberg, Exxon 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,”
This disagreement has led to ongoing discussions among the involved parties. While Chevron and Hess remain optimistic about reaching an agreement that would not derail the merger, the threat of arbitration looms if talks fail to produce a satisfactory resolution. Should arbitration confirm the applicability of the ROFR to the merger, and no agreement is reached, the merger could hit a dead end. This scenario would leave Hess as an independent entity.
ExxonMobil, operator of the Stabroek block, has discovered more than 11 billion oil-equivalent barrels there. It is currently producing more than 600,000 barrels of oil per day (b/d) and plans to ramp up to more than 1.2 million b/d by 2027.
