As posted in January, most analysts predicted that Chevron and Hess would prevail. Now that the arbitration panel has ruled, Chevron’s acquisition of Hess can be completed.
The position of Exxon and its partner, Chinese govt owned CNOOC, never made much sense given that Chevron was not buying the Stabroek share, they were buying the company that holds that share.
Not much attention has been paid to the importance of Chevron’s acquisition of Hess’s Gulf of America assets. The combined company will be the 3rd largest GoM oil producer (behind Shell and bp) and the second largest gas producer (behind only Shell). Hess acquired 20 GoA leases in Sale 261, ranking first in total high bids ($88 million) among all participants.
On May 26 in London a three-judge International Chamber of Commerce panel will finally begin considering the Exxon claim that the Stabroek joint operating agreement grants them the right-of-first-refusal in Chevron’s acquisition of Hess’s 30% share of the massive field (>11 billion boe) offshore Guyana.
Exxon’s rather unlikely ally in this case is state-owned China National Offshore Oil Corp. How did CNOOC get a stake in Stabroek and why is their position on the Hess acquisition hypocritical?
CNOOC became a 25% Stabroek partner by acquiring Canadian Nexen in 2013. Their Nexen acquisition, which included Canadian, US, and international assets, was only reluctantly approved by the Canadian and U.S. governments, and probably would not be approved today.
CNOOC’s Stabroek acquisition is thus very similar to Chevron’s. In both cases, the entire company, not just the Stabroek asset, was acquired.
The Stabroek acquisition has proven to be most fortuitous for CNOOC, not only because of the oil and gas resources, but also through the deepwater development expertise that has been gained. Now CNOOC is trying to further leverage their Stabroek position by joining Exxon in challenging the Chevron acquisition.
It would be great if the arbitration proceedings were streamed, but that will not be the case. It also appears unlikely that media will be allowed to attend or that transcripts will be made available.
As previously noted, I would have liked the Guyanese government to be more assertive in this dispute. Stabroek is Guyana’s offshore gem, their most important economic asset. This lengthy dispute has to affect partner teamwork and communication. From safety, environmental, and production standpoints, do you want feuding partners managing such an important national asset?
China National Offshore Oil Corp. (CNOOC) has surrendered its 21% interest in the Appomattox (Mississippi Canyon 391, 392, and 393) project and its 25% stake in Stampede (Green Canyon 468, 511, and 512). Those ownership positions were acquired in CNOOC’s takeover of Calgary-based Nexen in 2013.
Reuters has published an interesting article on the Exxon/CNOOC vs. Chevron/Hess dispute scheduled for arbitration next year in Paris. According to Reuters (emphasis added):
“Getting the panel to consider the appraised value is central to Exxon’s claim that the deal is an asset acquisition disguised as a merger. Exxon believes the Guyana asset is so valuable that the merger would trigger a change of control and give Exxon and CNOOC a right of first refusal to the asset sale, the people said.“
The Exxon argument implies that Hess’s only major asset is its share of Stabroek, which is hardly the case. Hess’s 30% Stabroek share is without question an important asset with great long-term potential, but Hess is also a major player elsewhere, most notably in the Bakken formation in North Dakota and the Gulf of Mexico. Implying that Hess was a single asset acquisition is thus misleading:
In Q4 of 2023, Hess produced 194,000 boepd in the Bakken formation vs. a Stabroek share of 128,000 bopd.
In 2023, Hess produced 20 million barrels of oil in the GoM and 40 bcf of gas making them the 8th highest oil producer and 7th highest gas producer.
Hess acquired 20 GoM leases in Sale 261, ranking first in total high bids ($88 million) among all participants.
Chevron and Hess GoM assets have significant potential for synergy. The combined company would be the 3rd largest GoM oil producer (behind Shell and bp) and the second largest gas producer (behind only Shell).
This dispute will continue to smolder given the delay in the arbitration hearings until May 2025. As previously mentioned, I believe the Government of Guyana should have intervened. I’m all for companies settling their disputes privately, but this dispute is over Guyanese resources, and the protracted delay could have implications for Guyana.
An International Chamber of Commerce panel has set a May 2025 date for the hearing on the dispute over Chevron’s acquisition of Hess’s share of Guyana’s Stabroek field. This is a massive delay considering the impact of this arbitration case on Chevron’s purchase of Hess.
As noted in a previous post, 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. The panel will decide, but given the May 2025 hearing date, we probably won’t know the outcome for a year.
The Guyanese government has not taken a position in this dispute, but in my opinion, there are reasons for them to be concerned. Stabroek is Guyana’s offshore gem, their most important economic asset. The dispute has to affect teamwork and communication.
From safety, environmental, and production standpoints, do you want feuding partners managing such an important national asset? Those are Guyanese resources that the Stabroek partners are licensed to produce. I would have liked to have seen the government tell them to get this resolved in 30 days or we’ll resolve it for them.
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?
Bud's Offshore Energy (BOE) 