The government’s decision to require that a capping stack be located in Guyanais prudent. Although the need for a capping stack is dependent on multiple barrier failures and is thus extremely low, the environmental and economic consequences of a prolonged well blowout warrant timely access to this tertiary well control option.
A capping stack must be properly maintained and deployable without delay. In that regard, BSEE has a good program for testing Gulf of Mexico capping stack readiness. Capping stack drills are an important post-Macondo addition to the unannounced oil spill response program that dates back to 1981.
“Troy Naquin, BSEE New Orleans District, observes as a capping stack is carefully lowered onto the deck of ship to be transported more than 100 miles offshore for a drill designed to test industry’s ability to successfully deploy it in case of an emergency, May 8, 2023.” BSEE photo/Bobby Nash
The DrillMAX is en route from Guyana to drill the Persephone wildcat well 500 km NE of Newfoundland in the highly prospective Orphan basin (3000 m water depth). This looks like the farthest from shore any well has been drilled in the Atlantic. The late spring date is prudent.This is definitely a well to watch because of the resource potential and difficult operating conditions.
As we wait for the International Chamber of Commerce (ICC) arbitration panel to rule on the Exxon-CNOOC-Chevron-Hess Stabroek dispute, key excerpts from Chevron’s SEC filing about their merger with Hess are pasted below. The text highlighted in red is particularly interesting.
If the ICC arbitration panel rules that the right-of-first-refusal (ROFR) provision applies, the Chevron filing says that the merger is off and Hess continues as Stabroek’s 30% owner. If that statement is correct, Exxon and CNOOC cannot obtain the Hess share. Their only benefit from the challenge would be to deny their rival Chevron from participating in the block or to receive payment from Chevron for approving the ownership change.
It’s also noteworthy that Exxon initially showed support for the deal (quote below).
p. 32: With respect to the Stabroek ROFR (as defined in the section entitled “The Merger—Stabroek JOA”), if the arbitration does not result in a confirmation that the Stabroek ROFR is inapplicable to the merger, and if Chevron, Hess, Exxon and/or CNOOC do not otherwise agree upon an acceptable resolution, then there would be a failure of a closing condition under the merger agreement, in which case the merger would not close. Some of these conditions are not in Hess’ or Chevron’s control.
Further, subject to any then ongoing arbitration relating to the Stabroek JOA, either Chevron or Hess may terminate the merger agreement if the merger has not been completed by October 22, 2024, (or April 22, 2025 or October 22, 2025, if the applicable end date is extended pursuant to the merger agreement) or by such later date as the parties may mutually agree.
p. 81: The Stabroek JOA contains a right of first refusal (the “Stabroek ROFR”) provision that, if applicable to a change of control transaction and properly exercised, provides the Stabroek Parties with a right to acquire the participating interest in the Stabroek Block held by the Stabroek Party subject to such transaction (at a value that is based on the portion of the value of the change of control transaction that reasonably should be allocated to such participating interest and is increased to reflect a tax gross-up) only after, and conditioned on, the closing of such transaction. Chevron and Hess believe that the Stabroek ROFR does not apply to the merger due to the structure of the merger and the language of the Stabroek ROFR provisions.
p. 82: On October 24, 2023, shortly after the merger was announced, Exxon issued the following statement, indicating its support for the merger: “Hess has been a valued partner in Guyana since 2014 and we look forward to continuing our successful operations in the Stabroek block with Chevron, pending the deal closing.” However, Exxon and CNOOC subsequently informed Chevron and Hess that they believe the Stabroek ROFR applies to the merger. Hess, Chevron, Exxon and CNOOC subsequently engaged in discussions regarding the applicability of the Stabroek ROFR to the merger.
If the arbitration does not result in a confirmation that the Stabroek ROFR is inapplicable to the merger, and if Chevron, Hess, Exxon and/or CNOOC do not otherwise agree upon an acceptable resolution, then there would be a failure of a closing condition under the merger agreement, in which case the merger would not close, and, pursuant to the terms of the Stabroek JOA, the Exxon affiliate and the CNOOC affiliate would cease to have rights under the Stabroek ROFR with respect to the merger. In that event, Hess would remain an independent public company and would continue to own its participating interest in the Stabroek Block. Based on the express terms of the Stabroek JOA, Chevron and Hess do not believe there is any material likelihood that the circumstances described in this paragraph will occur.
p. 118: In addition, with respect to the Stabroek ROFR, if the arbitration does not result in a confirmation that the Stabroek ROFR does not apply to the merger, and if Chevron, Hess, Exxon and/or CNOOC do not otherwise agree upon an acceptable resolution, then there would be a failure of a closing condition under the merger agreement, in which case the merger would not close.
Canadian and US approvals were granted and CNOOC acquired Nexen (Canada) in 2013.
Nexen’s Guyana interest was not mentioned in the press announcement, and appears to have been a rather minor consideration in the acquisition.
So, an apparent afterthought in CNOOC’s takeover of Nexen has (1) proven to be extremely profitable, (2) given the company and the Chinese government leverage in the Exxon-Chevron supermajor dispute, and (3) opened the door for CNOOC to increase their interest in the massive Stabroek field.
In light of the TikTok drama in Washington, I thought I’d take another look at Chinese ownership of Gulf of Mexico oil and gas leases.
A year ago, it was reported that State owned China National Offshore Oil Corp. (CNOOC) was considering an exit from its operations in the US, Canada, and the UK because of sanctions concerns. That may still be the case for other properties, but CNOOC has retained its Gulf of Mexico lease interests.
Per BOEM lease data, CNOOC continues to own 25% and 21% interest respectively in the important Stampede (Green Canyon 468, 511, and 512) and Appomattox (Mississippi Canyon 391, 392, and 393) deepwater projects. CNOOC reports are positive on those operations, noting that the production wells have performed better than expected.
CNOOC also owns interest in five other GoM leases. No CNOOC lease interest has been assigned to other companies in the past two years.
I welcome foreign investment in our offshore program, and see little downside in Chinese entities owning minority shares of OCS leases. GoM lease ownership does advance CNOOC’s understanding of deepwater exploration and development technology, but that knowledge can also be acquired elsewhere, sometimes in partnership with US companies (as is the case in Guyana).
Chevron continues to operate in Venezuela and is a beneficiary of the easing of US sanctions that facilitated the resumption of oil exports. Is the government of Guyana okay with Stabroek partners helping to support the regime that claims much of their offshore oil?
On the other hand, what about Exxon’s Stabroek partner, state-owned China National Offshore Oil Corp.? CNOOC has a 25% share of the Stabroek block (vs. 45% for Exxon and 30% for Hess) as a result of their takeover of (Canadian) Nexen in 2013. The CNOOC acquisition of Nexen was similar to Chevron’s acquisition of Hess. Was Exxon okay with that change in ownership?
CNOOC hasn’t released any public statements on the Stabroek dispute, but appears to be aligned with Exxon. Presumably, CNOOC also wants a larger share of the Stabroek pie. Is the Government of Guyana okay with an ally of Venezuela increasing their influence and having access to geologic, reservoir, and operational data for the Stabroek block? CNOOC is also partnered with Exxon on the block they acquired at the most recent licensing round.
Given the national security implications, is the Government of Guyana okay with leaving the resolution of this dispute to an ICC tribunal in Paris?
Are Exxon and Chinese partner (CNOOC) attempting to use Chevron’s acquisition of Hess to improve their already lucrative position in Guyana’s prolific Stabroek block?
The Stabroek operating agreement outlines terms for Hess, Exxon, and CNOOC to explore and develop the block.
This Stabroek agreement includes a right of first refusal (ROFR) provision which allows the parties to buy out the stake of one of them in the event of a ‘change of control’ transaction.
Chevron and Hess argue that the merger’s structure does not trigger the ROFR clause.
Exxon and CNOOC argue that the clause applies. This could force Hess to offer its stake in the Stabroek block to its partners first.
The Exxon/CNOOC position seems to be a stretch. Chevron did not buy the Stabroek share; they bought the company that holds that share. Hess is to be part of Chevron and there would be no change of control from the standpoint of the partnership.
As an offshore operator, Exxon has been highly responsible from a safety standpoint. However, the company has a shown tendency to stretch the envelope when it comes to contract rights. The most recent example was their acquisition of 163 GoM oil and gas leases for carbon disposal purposes, contrary to the terms of the sale notice and lease contracts.
OilNow has posted a good Guyana update. Production should reach 620,000 bopd in Q1 and grow to >1.2 million bopd in 2027/28. The growth in production is plotted below.
End of year data from gov.guyana for 2021-23. 2024 (Q1) and 2027 estimates are from OilNowMap shows locations of Exxon’s Guyana developments (current and planned)
Bud's Offshore Energy (BOE) 