Exxon and Chevron’s fight over Guyana’s oil triggers major investigation by U.S. federal agencies over their assets

Apr 23, 2024 ExxonMobil, News, Oil & Gas

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Kaieteur News – The fight over Guyana’s oil, between oil majors Chevron and ExxonMobil have triggered an investigation into their assets by two federal agencies in the United States of America.  According to Forbes, the assets of ExxonMobil and Chevron as well as other oil companies are currently being evaluated by the Securities and Exchange Commission, and the Federal Trade Commission because of climate related concerns and competition law.

It is important to note that Exxon’s acquisition of Pioneer Natural Resources and Chevron’s acquisition of Hess placed them both at the top of the agencies’ list. This publication previously reported that, the two have been in a battle over Hess’ 30% stake in the Stabroek Block offshore Guyana – the centrepiece of Chevron’s deal for Hess Corporation. Chevron’s US$53 billion acquisition of Hess potentially 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.

On October 23, 2023 Chevron announced that it entered into a definitive agreement with Hess Corporation to acquire all of the outstanding shares of Hess in an all-stock transaction valued at $53 billion, or $171 per share based on Chevron’s closing price on October 20, 2023. Under the terms of the agreement, Hess shareholders will receive 1.0250 shares of Chevron for each Hess share. The total enterprise value, including debt, of the transaction is $60 billion.

In a statement, Chevron had said the acquisition of Hess upgrades and diversifies Chevron’s already advantaged portfolio. The oil company noted, “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.” To this end, it signaled, “The combined company is expected to grow production and free cash flow faster and for longer than Chevron’s current five-year guidance.” Chairman and Chief Executive Officer (CEO) of Chevron, Mike Wirth said the company is now positioned to strengthen its long-term performance and further enhance its “advantaged portfolio by adding world-class assets.”

However, Chevron’s pending $53 billion acquisition of Hess is largely a play to gain a foothold in Guyana’s massive oil assets. Exxon is claiming a right of first refusal over Hess’ Guyana assets under a joint operating agreement that governs the Stabroek oil block, which is estimated to have 11 billion barrels of oil and gas. Exxon controls 45% of the Stabroek block, while Hess has a 30% stake. The China National Offshore Oil Corporation, or CNOOC, controls the remaining 25%. Exxon escalated the dispute with Chevron by seeking arbitration at the International Chamber of Commerce in Paris last month. Chevron rejects Exxon’s claim to a right of first refusal, but has told investors in financial filings that its deal with Hess would not close if an arbitration court rules in its competitors’ favour.

In the same month of October 2023, the US Reuters reported that Exxon Mobil agreed to buy U.S. rival Pioneer Natural Resources in an all-stock deal valued at $59.5 billion that would make it the biggest producer in the largest U.S. oilfield and secure a decade of low-cost production. Pioneer is the Permian oilfield’s largest well operator, accounting for 9% of gross production, while Exxon occupies the No. 5 spot with 6%, according to RBC Capital Markets. Pioneer had bulked up through multibillion-dollar deals such as those of shale rivals DoublePoint Energy for $6.4 billion in 2021 and Parsley Energy for $7.6 billion in 2020 under CEO Sheffield.

The deal, valued at $253 a share, combines the largest U.S. oil company with one of the most successful names to emerge from the shale revolution that turned the U.S. into the world’s largest oil producer in little more than a decade. Exxon Chief Executive Darren Woods said in an interview the combination provides a big opportunity for synergies among the companies. “We basically closed this deal fairly quickly,” Woods said after approaching Pioneer’s Scott Sheffield two weeks ago, “and started talking about the complementary nature of both of our businesses.”

The Forbes article stated that, “Senators and Congressmen seeking lower oil prices and lower greenhouse gas emissions are chiming in to stop the deals, but they are working at cross-purposes. In their November 1, 2023, letter to the Federal Trade Commission, twenty-three Senators complain that the ExxonMobil and Chevron make profits, pay dividends, buyback shares, and make acquisitions. That is what corporations do, they pay taxes on profits too. It’s the American way. They return profits to shareholders when they cannot make investments that generate acceptable rates of return.”

The federal government has been limiting the ability of oil companies to expand their refinery and development capacity for decades now, and the Biden administration has continued to, “to cut access to onshore and offshore lands, raised the cost of permits, and increased the cost of leasing federal lands.”

“More than 2 million barrels per day of domestic refining capacity has closed since 2019, and there are no buyers for those refineries on the market. No one in Congress can be surprised by the dividends, share buybacks, and acquisitions. The dividends and share buybacks provide income to everyday voters too,” the article stated. Another letter on March 6 to the Federal Trade Commission a total of forty-nine Senators and Representatives complained that “accelerating concentration hurts competition, hurts consumers, and hurts the climate.” They have no data to support their arguments.

Furthermore, “While noting that the combined ExxonMobil and Pioneer will produce 1.2 million barrels of oil per day, they neglect to acknowledge that ExxonMobil needs at least 4 million barrels per day for its refineries. The authors also miss that ExxonMobil’s even larger competitors are foreign, national oil companies in a daily global market that exceeds 100 million barrels per day. ExxonMobil competes with other refiners to acquire crude oil supply. Chevron is in the reverse position with more oil production than oil refining capacity. Chevron competes with oil producers around the world to get its oil into refineries. Neither company, can control oil or refined products prices, and each is acutely aware of U.S. antitrust laws.”

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• Chevron, Exxon, investigation, oil, oil major

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