Exxon Mobil's (XOM) legal challenge against Chevron's (CVX) proposed $53 billion acquisition of Hess hinges on whether the deal would involve a change of control of Hess' (HES) prized subsidiary in Guyana. The two top U.S. oil producers are in an arbitration battle over the world's largest oil discovery in almost two decades, located offshore Guyana. Exxon, which operates the output in Guyana with a 45% stake, contends that it should have been given the opportunity to purchase Hess' stake first. The dispute revolves around whether the right of first refusal is triggered by the acquisition.
Chevron and Hess argue that the acquisition is structured to keep Hess intact, meaning no change of control in the Guyana asset. They assert that the deal has no merit because Hess would remain a unit within Chevron. The arbitration panel must decide whether to focus on the language in the contract or Chevron's intent. A resolution could push into next year, as Exxon has warned, depending on the approach taken. The stakes are high, as Guyana represents a significant portion of the $53 billion offered for Hess.
Market Overview:- Exxon challenges Chevron's acquisition of Hess over change of control.
- Arbitration hinges on interpretation of contract language.
- Guyana asset key to $53 billion acquisition value.
- Chevron structured the deal to avoid triggering right of first refusal.
- Exxon seeks compensation or a chance to bid for Hess' stake.
- Arbitration outcome could impact major industry mergers and acquisitions.
- Arbitration panel to decide on language versus intent in contract.
- Possible new stages of dispute requiring further investigation.
- Chevron and Hess aim for a hearing in Q3 and resolution in Q4.
Exxon's arbitration win would not end the dispute but open doors for compensation or bidding for Hess' stake. The arbitration panel will analyze a confidential joint operation agreement (JOA) that rules Guyana operations, with key language on change of control. Chevron and Hess remain confident in their position, anticipating a straightforward interpretation favoring them. The oil riches in Guyana, projected to produce 1.9 million barrels of oil equivalent per day in the next decade, make this arbitration crucial for the involved parties and the industry.
