Hoardings showing the names and logos of ExxonMobil and Chevron in the backdrop of a silhouette of oil extraction machinery. Photo: El CEO.
ExxonMobil and Chevron are in a dispute over the control of almost a third of the stakes in the Stabroek block, located in the territorial waters of the Cooperative Republic of Guyana and in the undelimited waters between Guyana and Venezuela.
In October 2023, the US oil company Chevron reached a purchase agreement with another US oil company, Hess, to acquire 30% of the shares in the Stabroek block. The offshore oil block is administered by the US oil multinational ExxonMobil illegally, since a significant part of this block is located off the Atlantic coast of the Essequibo region, whose territorial waters are pending delimitation between Venezuela and Guyana.
The purchase agreement for the corporate merger of Chevron and Hess, worth $53 billion, had been taken for granted. Once the deal was to be completed, Chevron would obtain a stake in the Stabroek block development, one of the fastest growing oil projects in the world today and considered to be the most important oil discovery in the last decade.
Recently, ExxonMobil has responded by bringing the transaction to a standstill on the basis of its pre-emption rights over the Stabroek stakes. The company’s senior vice-president Neil Chapman said at a Morgan Stanley conference that the company has filed for an arbitration before the International Chamber of Commerce in Paris, with the aim of stopping the Chevron-Hess agreement.
ExxonMobil’s aim is to prevent the deal from going through and, ultimately, through arbitration, to match Chevron’s bid for the Hess stake. ExxonMobil currently controls 45% of the Stabroek stakes, so acquiring Hess would eventually bring two-thirds of the project under its control.
Bloomberg reported that Chevron and Hess have argued that the pre-emption rights alluded to by ExxonMobil do not apply to corporate mergers. ExxonMobil, on the other hand, claims that Chevron is circumventing its consigned participation rights in the development of the Stabroek project since 2015.
ExxonMobil VP Chapman commented at the Morgan Stanley conference that he is “very confident” that the case in Paris will be resolved in his company’s favor. According to the Bloomberg report, the process could take about six months. Hess, on the other hand, announced in a statement that the deal would go ahead, while Chevron declared that the negotiations with ExxonMobil would not compromise the finalization of the corporate merger agreement.
Hess added that the arbitration will delay the completion of the transaction. “There is no possible scenario in which Exxon could acquire Hess’ interest in Guyana as a result of the Chevron-Hess transaction,” the company stated recently via email to Bloomberg.
Financial implications and effects
In a Bloomberg op-ed, former Goldman Sachs investment banker Matt Levine tackles a major issue in the ExxonMobil-Chevron tussle. “The language of the Stabroek joint operating agreement is not public, nor is the arbitration filing, so I don’t know what the contract says, and even if I did, I probably wouldn’t be sure what it means,” Levine wrote.
The opaque nature of the terms and conditions of the Stabroek project, in addition to making the confrontation between the companies much more aggressive, also exhibits that the framework of illegality irresponsibly propitiated by the Guyanese government has generated a logic of privatization and outsourcing in everything related to Stabroek. This generates insecurity and transnationalization of the area, where private interests take precedence over state interests.
Regarding ExxonMobil’s interests, Levine himself says, “Buying the stake would be costly, possibly more costly for Exxon than for Chevron because it would have to pay taxes to Hess. On the other hand, for Exxon, filing for arbitration to delay the Chevron/Hess deal (and cast some doubt on its ability to close it) is simply good business.”
The dispute has had a significant impact on the stock market, given that the Chevron-Hess merger is considered to be the most important merger deal in the oil sector in recent years. Major hedge funds such as Millennium Management, Pentwater Capital Management, and Balyasny Asset Management had acquired Hess shares below their market price, expecting to capitalize on the share price increase once the deal with Chevron was finalized.
However, according to a Bloomberg report, in the context of the Venezuelan referendum on the Essequibo, the merger operation began to suffer problems due to the uncertainty about how the political and diplomatic tension between Venezuela and Guyana would unfold.
When the tensions somewhat eased following the commitment of the two countries to avoid an escalation, with the signing of the Argyle Joint Declaration at the end of 2023, the financial perception around the agreement improved. However, “concerned hedge fund executives from London and New York flocked to Georgetown, Guyana’s capital, in February to assess whether the dispute could scuttle the deal,” reported Bloomberg.
The impasse has impacted the stock price of both companies in February, which is evidence of how the market is perceiving the final outcome of the dispute.
As can be seen below, Chevron’s share value has suffered a downturn, while ExxonMobil’s share price is on the rise.
Venezuela amid the dispute
The Chevron-ExxonMobil dispute described above confirms the profound interest of the latter in the rich crude oil fields in the undelimited waters of the Essequibo territory.
Its main objective is to control, in a near-monopolistic condition, the Stabroek block. This year, ExxonMobil withdrew all its investments in Equatorial Guinea after 30 years of continuous operation. In addition, it announced the sale of its assets in the shale industry of Vaca Muerta, Argentina. Its bet on Stabroek and other oil projects in Guyana and the undelimited waters occupied by Guyana is strategic and existential for the future of the company.
It is foreseeable that a favorable outcome for ExxonMobil in the arbitration against Chevron will give it greater decision-making power over the government of Guyana and the oil projects in the disputed waters. This possibility is not trivial for Venezuela, since a greater influence of ExxonMobil could make the government of Irfaan Ali move away from its incipient adherence to dialogue and understanding with Venezuela within a framework of respect and minimum coexistence.
The Chevron-ExxonMobil dispute shows the urgency of insisting on the full reactivation of the 1966 Geneva Agreement. The diplomatic mechanism remains the only valid legal instrument to preserve the possibility of sovereign state resolution of the controversy and containing the attempts of privatization and opacity with respect to the destiny of energy projects in the area.
As can be seen from the graphs shown above, multinational oil companies and merger deals such as the Chevron-Hess deal are highly susceptible to political and diplomatic tensions. This is confirmed by the Bloomberg report on the mass visit to Georgetown by investors concerned about the future of the merger two months after the Essequibo consultative referendum in Venezuela.
Ultimately, this situation shows that there is no limit to ExxonMobil’s monopolistic ambitions, as it is not only going against Venezuela but also against its corporate competitors in the oil sector.
Translation: Orinoco Tribune
OT/SC/DZ
Misión Verdad
Misión Verdad is a Venezuelan investigative journalism website with a socialist perspective in defense of the Bolivarian Revolution
