Exxon, Chevron in fight over Guyana’s oil

Feb 28, 2024 ExxonMobil, News, Oil & Gas

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…Chevron says purchase of Hess Global is because of big pay day from Stabroek Block

Kaieteur News – United States (U.S.) Oil majors Chevron and ExxonMobil Corp. are at loggerheads over Chevron’s acquisition of a 30% stake in the Stabroek Block offshore Guyana – the centrepiece of its deal for Hess Corporation, Reuters reported.

Chevron’s US$53 billion acquisition of Hess gives it access to Hess’ stake in the Stabroek Block and positions the oil major to profit from Guyana’s emergence as an oil powerhouse, boasting one of the world’s fastest-growing economies.

Exxon operates all production in Guyana with a 45% stake in the consortium with Hess and China’s CNOOC as its minority partners. Last October, Chevron proposed to buy Hess largely to obtain the Guyana stake.

ExxonMobil stated on Monday its intention to potentially pre-empt Chevron’s acquisition of the stake, which forms a crucial component of its deal with Hess.  The disagreement centers on Exxon’s assertion of a right to first refusal regarding any sale of the Stabroek block, a vast oil field off the coast of Guyana estimated to contain at least 11 billion barrels of oil.

Chevron, in a securities filing, cautioned that the dispute could jeopardize its US$53 billion deal for Hess. Should the deal collapse, Hess might face a breakup fee of US$1.7 billion. Hess shares fell more than 3% in late trading. Chevron fell almost 1% – Reuters reported.

Exxon said in a statement that it wants to ensure it will “preserve our right to realize the significant value we’ve created and are entitled to in the Guyana asset,” adding it is “working closely with the Guyanese government to ensure their rights and privileges.”

Dan Pickering, Chief Investment Officer at Pickering Energy Partners, told Reuters, “You have to assume that Chevron made a business decision that Exxon wouldn’t try to pre-empt.” The two companies are partners in projects elsewhere and the dispute signals how valuable the Guyana projects are to Exxon, he said.

“It obviously means that 30% of Guyana is really valuable and maybe they think that Chevron is getting in too cheaply, Pickering said, adding “Right now, it feels like a food fight.”

Moreover, Chevron said it believes the talks “will result in an outcome that will not delay, impede or prevent the consummation of the merger.” However, it also said the dispute could wind up in arbitration if the two sides cannot reach a settlement.

“The right of first refusal provision is not applicable to the merger. We are fully committed to the transaction and do not believe the ROFR or these discussions will prevent its successful completion,” Chevron and Hess said.

Notably, Reuters reported also that a disruption of the deal terms would be a major blow to the U.S. second largest oil producer, which has been trying to expand production into lower cost fields in the Americas.

Chevron want-in

The Exxon-led consortium anticipates a substantial increase in Guyana’s oil output to over 1.2 million barrels per day by 2027.

In a press release on October 23, 2023, Chevron stated that the acquisition of Hess upgrades and diversifies the company’s already advantaged portfolio, adding that the Stabroek block in Guyana is an extraordinary asset with industry leading cash margins and low carbon intensity that is expected to deliver production growth into the next decade.

The company listed Guyana – stating that Hess 30% ownership in more than 11 billion barrels of oil equivalent discovered recoverable resource with high cash margins per barrel, strong production growth outlook and potential exploration upside – as one of the transactions benefits.

Exxon’s story of success Guyana

Last year, President of ExxonMobil Guyana, Alistair Routledge, told the Financial Times, “It is a jewel in ExxonMobil’s crown. It’s a significant resource. It fits very well with the execution capability of ExxonMobil.”

When asked for his thoughts on Chevron’s takeover of Hess, Routledge emphasized, “Clearly what’s attractive to Chevron is that ExxonMobil is operating at a very high level… From first discovery in 2015 to first oil in 2019. I mean, [it’s] just unheard of really to develop a new resource in a brand new basin with no existing infrastructure in that short a timeframe.”

Also last year, ExxonMobil Corporation’s Chief Executive Officer (CEO) Darren Woods, during a discussion held in Houston, Texas, boasted about “the story of success” Guyana. Woods was also proud to highlight the company’s rapid pace of development in the country.

Speaking about Exxon success in Guyana, Woods shared that the company was able to move from first discovery to first oil within five years, beating industry record. “We brought that like from discovery to first production in five years which is, if not industry record is pretty close to it. When you think about what typically the timeframe (is), (it) typically (takes) the industry about 10 years,” Exxon’s CEO said.

He continued: “If you then look at what we have delivered since that timeframe, we are bringing in those ships [Floating production storage and offloading vessels] and that production ahead of schedule, we’ve beaten schedule for the two ships [Liza Destiny and Liza Unity] that we’ve got and the third one [Prosperity] that we are working on, that is expect to beat schedule.”

Woods bragged about ExxonMobil Guyana being able to run production, “at a higher level than we have anticipated when we made those investments and staying focused,” adding that the company is also focused on, “helping reducing emissions.”

Sweet-Deal

Guyana signed onto a Production Sharing Agreement (PSA) with the oil major, which has been heavily criticised for being lopsided and benefiting the oil company more than the country.

The 2016 deal gives Guyana an industry-low 2% royalty. Presently, Guyana shares revenue with ExxonMobil after the company deducts 75 percent towards the cost incurred to develop the resources in the Stabroek Block.

This arrangement, with the lack of ring-fencing, sees Guyana paying for projects that are yet to commence production activities. Each month bills from future producing developments are added to the list of expenses to be cost recovered by Exxon. After the 75 percent is deducted to pay back the oil company, Guyana then shares 50/50 of the 25 percent remaining with Exxon as profits. This amounts to 12.5 percent of profits from the operations.

Also, under the signed deal, Guyana has agreed to, under the taxation provisions, to pay ExxonMobil’s share of Corporation and Income Tax. As such it would mean, that Guyana foregoes each year, billions of US dollars. On top of this, documentation to this effect is then provided to the US based company allowing it to not have to pay any taxes in its home country for its earnings overseas.

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• Chevron, Exxon, Guyana, Hess, Stabroek Block

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