ExxonMobil arbitration could stop US$53bn Chevron/Hess merger

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EXXONMOBIL has filed for arbitration in a bid to stop Chevron from getting Hess’s 30% stake in the prolific Stabroek block, as part of its US$53bn acquisition of the company.

Located around 200 km offshore of Guyana and operated by ExxonMobil, the Stabroek block extends 6.6m acres (26,709 km²). The reservoir boasts more than 11bn boe in gross discovered recoverable resources. ExxonMobil and Hess are part owners of the block, with a 45% and 30% interest respectively, with China National Offshore Oil Corporation (CNOOC) owning the remaining 25%.

By acquiring Hess, Chevron expected to gain access to this “extraordinary asset with industry leading cash margins”.

ExxonMobil’s senior VP Neil Chapman disclosed the move for arbitration earlier this week, more than four months after the deal was announced. He was speaking at Morgan Stanley’s Energy and Power Conference.

Chapman accused Chevron and Hess of attempting to circumvent the commercial purpose of a joint operating agreement (JOA) for the Stabroek block, entered into in 2014. He claimed the JOA provides pre-emption rights for the other partners if any party wants to sell, recognising both asset transactions and parental transactions that would include the block. These rights would ensure that in the event of a sale, Hess’s stake would first be offered to its partners before a third-party would be given the opportunity to buy.

Chapman said: “We’re extremely confident in our position that pre-emption rights exist in this contract…We filed for arbitration to protect those pre-emption rights and we think that’s very important for the company, we think it’s very important for the industry. We think it’s precedent setting.”

He stressed that the Stabroek partners took on “tremendous” exploration, commercial, and financial risk in pursuing the joint venture, which has ultimately provided great value to Guyana as well as the partners. “We want to ensure that we realise the value that we’ve created,” he said. If given the chance, he said ExxonMobil will consider the value offered by Hess’s 30% stake before deciding on how to proceed. 

However, Chevron and Hess have argued that pre-emption rights do not apply. Chevron spokesperson Braden Reddall said: “We remain fully committed to the transaction and are confident in our position. We look forward to closing the transaction.”

Nevertheless, Chevron warned in a recent regulatory filing that if arbitration does not find in their favour, the merger with Hess will not close.

The arbitration will take place through the International Chamber of Commerce, based in France.