Background on Key Players and the Guyana Oil Field
Chevron, a leading global energy company, has successfully completed its acquisition of Hess Corporation for approximately $60 billion, including debt. This move was primarily motivated by Hess’s involvement in the massive offshore Stabroek oil field in Guyana.
Hess Corporation, an American energy company, held a 30% stake in the Stabroek oil field alongside ExxonMobil (45%) and China’s Cnooc (25%). Each company had the right to reject a third-party acquisition of their stake in the field. ExxonMobil initially opposed Chevron’s intentions, citing their right of preference to protect significant investments made in the area.
Legal Dispute and Arbitration
The disagreement between Chevron and ExxonMobil led to a lengthy arbitration process at the International Chamber of Commerce (ICC). The ICC panel recently ruled in favor of Chevron, a decision that ExxonMobil reluctantly accepted.
“While we disagree with the ICC panel’s interpretation, we respect the arbitration process and its resolution,” said an ExxonMobil spokesperson. “Given the substantial value we’ve created in developing resources in Guyana, we felt obligated to exercise our right of preference to safeguard these significant investments made during uncertain times.”
Post-Arbitration Developments
Following the arbitration victory, Chevron now holds a 30% stake in the Stabroek oil field alongside ExxonMobil (45%) and Cnooc (25%). The field, considered one of the largest discoveries in a decade with over 11 billion barrels of oil equivalent, is poised for further development.
“We welcome Chevron to the project and look forward to continuing our industry-leading performance and value creation in Guyana for all parties involved,” stated an ExxonMobil spokesperson.
Integration and Future Outlook
Chevron plans to issue around 301 million shares to exchange with Hess shareholders at a ratio of 1.0250 Chevron shares for each Hess share.
This acquisition is expected to be accretive to earnings per share starting in 2025 and is projected to generate $1 billion in annual cost synergies. Chevron’s available investment budget within its expanded portfolio is estimated to range between $19 billion and $22 billion.
However, TD Cowen analysts predict that the operation may not be cash flow positive in 2026, and its status for 2027 remains unclear. They suggest that Chevron might divest from its Bakken Shale activities in the northern United States, which are deemed non-priority, with Chord Energy and Devon Energy as potential buyers.
Regulatory Developments
The completion of the Hess acquisition by Chevron follows positive news for both companies, as the U.S. Federal Trade Commission (FTC) lifted restrictions related to Chevron’s authorization for the operation.
Initially, the FTC had barred John Hess, Hess Corporation’s founder and CEO, from joining Chevron’s board. Now, he can participate in the new Chevron board, provided other administrators agree.
Similarly, the FTC overturned conditions previously imposed on ExxonMobil’s acquisition of Pioneer Natural Resources, allowing Scott Sheffield, Pioneer’s founder and CEO, to join ExxonMobil’s board.
Key Questions and Answers
- What was the main reason for Chevron’s acquisition of Hess Corporation? Chevron primarily sought Hess’s involvement in the massive Stabroek offshore oil field in Guyana.
- What was the legal dispute between Chevron and ExxonMobil about? The disagreement centered around each company’s right to reject a third-party acquisition of their stake in the Stabroek oil field.
- How did the arbitration process resolve the dispute? The ICC panel ruled in favor of Chevron, a decision ExxonMobil reluctantly accepted.
- What is the current stake distribution in the Stabroek oil field? ExxonMobil holds 45%, Cnooc has 25%, and Chevron now owns 30%.
- What are the expected benefits of this acquisition for Chevron? The acquisition is projected to generate $1 billion in annual cost synergies and be accretive to earnings per share starting in 2025.
