Hess shareholders back merger with Chevron despite arbitration over Guyana assets

U.S. oil and gas player Hess Corporation has secured the required approval from its shareholders for its proposed merger with Chevron, a compatriot energy giant. This comes at a time when the company is entangled in an arbitration process with its partners in the assets located in the Stabroek block off the coast of Guyana.

On October 23, 2023, Chevron revealed a $53 billion all-stock deal to acquire Hess Corporation, which was anticipated to close in the first half of 2024, subject to Hess shareholder approval, regulatory approvals, and other customary closing conditions. While Hess shareholders will receive 1.0250 shares of Chevron for each Hess share, the total enterprise value of the transaction, including debt, is $60 billion.

The Hess acquisition is anticipated to upgrade and diversify the U.S. giant’s portfolio, enriching it with not only more shale assets but also those in Guyana’s Stabroek block. Following the closing of the acquisition, Chevron’s annual capex budget is expected to be between $19 and $22 billion.

However, a plot twist came in March 2024 when ExxonMobil and CNOOC, Hess’ partners in the Stabroek block, decided to file cases before the International Chamber of Commerce, as they are convinced that they have a right to a first refusal over any sale of the U.S. firm’s 30% interest in the oil-rich offshore block in Guyana under the existing joint operating agreement.

Against this background, the lion’s share of Hess shareholders voted in favor of the company’s merger with Chevron at a special meeting held on May 28. The firm underlines that no approval of Chevron stockholders is required in connection with the business combination. While the duo is working to complete the merger as soon as practicable, this remains subject to other closing conditions.

These conditions encompass the expiration or termination of any applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the satisfactory resolution of ongoing arbitration proceedings regarding preemptive rights in the Stabroek block joint operating agreement.

Guyana has emerged as the world’s fastest-growing oil region since its first offshore discovery in 2015. The Stabroek block, which covers 6.6 million acres or 26,800 square kilometers, is operated by ExxonMobil with a 45% interest. The company’s partners in the block are Hess Guyana Exploration (30%) and CNOOC Petroleum Guyana (25%).

While the arbitration proceedings have the potential to delay the merger with Chevron, as they can take months to be sorted out, stretching potentially into 2025, both Hess and Chevron claim the rights the Stabroek block partners seek do not apply. Depending on the outcome of the arbitration process, the merger might even fall through.

John Hess, Hess’ CEO, commented: “We are very pleased that the majority of our stockholders recognize the compelling value of this strategic transaction and look forward to the successful completion of our merger with Chevron.

“Together we will be positioned as a premier integrated energy company, with the leadership, asset portfolio and financial resources to deliver significant shareholder value for years to come.”

Chevron is actively working on stepping up its oil and gas portfolio expansion as confirmed by recent deals in Namibia and Uruguay.