‘Guyana's the Crown Jewel in Global Oil’ - Industry Analyst

‘Guyana’s the Crown Jewel in Global Oil’ – Industry Analyst

Oct 26, 2023 ExxonMobil, News, Oil & Gas

Hess sale to Chevron…

Kaieteur News – Paul Sankey, the lead analyst at Sankey Research, recently shared his perspective on the acquisition of Hess Corporation by Chevron Corporation during a segment on CNBC’s ‘Squawk on the Street.’

On Monday, it was unveiled that Chevron, one of the world’s major players in the oil industry, is set to purchase all outstanding shares of Hess for a substantial US$53 billion, equivalent to US$171 per share.

Sankey was queried about his take on this significant deal. He remarked, “Well, we know Guyana is the best asset and global oil. It’s remarkable so Hess was trading as a takeover play? And the question was, can you get a high enough premium for the actually to be a consummated deal?”

He continued by underscoring that it raises questions why Hess’ Chief Executive Officer (CEO), John Hess, chose this moment and this price. Interestingly, he outlined that Hess had reached an all-time high just last week, which is a positive sign, but the 5% premium to that price falls somewhat short. Notably, Hess was one of the last remaining independent oil companies on the U.S. exchange, making this deal seem somewhat undervalued and raising questions for the rest of the sector.”

When asked about Chevron’s perspective, Sankey expressed, “This is indeed an exceptional deal. Chevron has substantial exposure to Kazakhstan, which necessitates transiting through Russia—a key aspect of the next decade. They also have a strong foothold in the Permian Basin. If they were to acquire in the Permian, it would dilute their position. Therefore, the real question was whether Chevron could secure Hess. Honestly, I didn’t think they could, and I’m thrilled for Chevron. It’s a remarkable achievement for John Hess, and it’s a bit of a surprise since I didn’t anticipate it being acquired for only a 5% premium. I thought we might be looking at US$200 a share, which was within the range of the highest price targets on the street, so it’s US$20 below that. Of course, that didn’t include the takeover premium.”

This publication reported that under the terms of the agreement, Hess shareholders will receive 1.0250 shares of Chevron for each Hess share, making the total value of the transaction an impressive US$60 billion.

Of particular note, Chevron’s acquisition of Hess provides it with exclusive control over a highly coveted prize—30% of the working interest in Guyana’s Stabroek Block. In this expansive deepwater block spanning 6.6 million acres, ExxonMobil operates with a 45% working interest, while China National Offshore Oil Corporation (CNOOC) holds 25%.

Since the commencement of oil production in December 2019 at the Stabroek Block’s Liza Phase One Project, Exxon has successfully launched another project, Liza Phase Two, in February 2022. Both ventures are contributing approximately 400,000 barrels of oil per day. Exxon and its partners are aiming for over 1.2 million barrels of oil production by 2027, solidifying Guyana’s Stabroek Block as one of the world’s fastest-developing oil hotspots.

Hess’ CEO, John Hess, has repeatedly emphasized that the Stabroek Block boasts five government-approved projects, each capable of generating over US$1 billion in annual profits for the company.

The remarkable profit potential of Guyana’s Stabroek Block hasn’t escaped Chevron’s notice, as reflected in the company’s comments on Monday.

Chevron has labeled the Stabroek Block as “an extraordinary asset with industry-leading cash margins and low carbon intensity, expected to drive production growth into the next decade.” The company also designates Guyana’s Stabroek Block as a priority asset, with over US$11 billion barrels of oil equivalent in discovered recoverable resources, promising high cash margins per barrel, a robust production growth outlook, and potential exploration opportunities.

Additionally, the large oil producer has expressed significant interest in the cash flow that will follow the start-up of Payara, the third oil project expected to commence by year-end, as well as Yellowtail, the fourth oil project scheduled for 2025.