Exxon Looking To “Extract A Pound Of Flesh” From Chevron’s Proposed Takeover Of Hess

Exxon’s challenge of Chevron’s acquisition of Hess could result in a windfall for Exxon shareholders, a new report from Reuters speculates. 

As we wrote earlier this week, Exxon is challenging Chevron’s acquisition of Hess by challenging the terms of a stake in a major Guyana oil field. Exxon said it could exercise pre-emptive rights that could block Chevron from acquiring a 30% stake in the field, which sits at the center of the potential Hess acquisition. 

MKP Advisors said in a note reviewed by Reuters that Exxon is “very possibly looking to extract a pound of flesh from Chevron to support the deal proceeding.” They speculated that “It is very possible they want greater commitments from Chevron than Hess has previously signed up to.”

Exxon could be targeting Chevron to make concessions elsewhere, or to raise commitments already in place for the Guyana project. And it may be easier for Chevron to make concessions than to fight proceedings in court. 

Stewart Glickman, energy equity analyst at CFRA Research, told Reuters: “It’s impossible to say if Chevron’s lawyers or Exxon’s lawyers are correct.”

We noted earlier this week that ExxonMobil and China National Offshore Oil Corporation are “asserting their right to pre-empt its purchase of a stake in a Guyana oil project that is central to the deal.”

Exxon and CNOOC are joint owners of the Stabroek Block project, the report says. A Chevron regulatory filing out this week says it is in discussion with the parties “regarding a right of first refusal provision in the joint operating agreement” and Exxon has said it is “engaged in conversations with Hess and Chevron and those conversations will continue”.

The full text of Chevron’s new disclosure states:

Chevron may not complete the acquisition of Hess Corporation within the time frame the company anticipates or at all, which could have adverse effects on Chevron.

The completion of the acquisition of Hess Corporation (Hess) is subject to a number of conditions, including regulatory approvals and approval by Hess stockholders of the adoption of the merger agreement. Additionally, Hess and Chevron have been engaged in discussions with Exxon Mobil Corporation and China National Offshore Oil Corporation regarding a right of first refusal provision in the joint operating agreement for the Stabroek Block offshore Guyana.

If these discussions do not result in an acceptable resolution and arbitration (if pursued) does not result in a confirmation that such right of first refusal provision is inapplicable to the merger, then there would be a failure of a closing condition under the Merger Agreement, in which case the merger would not close.

Exxon also confirmed earlier this week it was in talks regarding the deal, stating: “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 realise the significant value we’ve created and are entitled to in the Guyana asset.”

The “most likely outcome is one in which the . . . deal is ultimately consummated, perhaps with a bit of a delay,” analyst Jason Gabelman with TD Cowen told FT.