No. 2 US oil producers were originally targeting the mid-2024 deadline.
Exxon, who runs the Guyana Project and holds a 45% stake along with Hess and CNOOC, challenged the merger through arbitration, citing Hess’s first right to denial of Guyana assets.
“The delays maintained Hess Oil’s total revenue of approximately 180,000 barrels per day (BPD), approximately $6-7 billion, and $3 billion in profits. The Stabroek block in Guyana was sailing to Chevron in 2024.
Chevron’s trade has been part of the biggest wave of integration in the oil industry for over 20 years, a strategic counter to Exxon’s own blockbuster deal and growth position in the Permian.
For Chevron CEO Michael Worth, his acquisition of Hess and stake in Guyana was central to the company’s strategy for the future growth.
That strategy was at Limbo during the arbitration, initially expected to be a clean and timely victory for Chevron, but turned into a high stakes challenge for Worth, who had already lost one major deal.
He waived Anadarko Oil’s purchase bid in 2019 after being overwhelmed by the higher offer of Occidental Petroleum.
Chevron stock overhang
With Hess’ contract closed, Chevron hopes to achieve a synergistic effect of $1 billion in run-rate costs by the end of 2025, saying it will cut jobs due to overlapping roles between the two companies.
Chevron has dumped up to 20% of the global workforce, facing an increase in safety issues, and its operations in Venezuela are caught up in geopolitical crossfires.
“For Chevron, this advantageous ruling will help us avoid other time-consuming (and perhaps costly) approaches for inorganic growth,” said Atul Reina, vice president of Reistad Energy.
“If the ruling had disappeared in favour of Exxon Mobil and the CNOOC, Chevron would have had to look for opportunities for growth elsewhere…this would have probably been translated into Chevron.
During the arbitration, Chevron was preparing to merge the Hess business, purchasing $2.2 billion in Hess shares and issuing $5.5 billion in long-term debt.
The arbitration itself was costly, Shulman said.
“As you add an estimated $500-$100 million arbitration fee and Whiteshaw’s billable time, you start to see why Mike Worth’s victory lap feels like he’s got an Indy 500 with three tires,” Schulman said.
In contrast, Exxon’s own $60 billion acquisition of pioneer natural resources announced the same month as Chevron’s deal, which was closed by May 2024.
Chevron’s shares have fallen by about 9% since the announcement of Hess’ trading. Exxon’s shares have exceeded 1% since the announcement of the Pioneer acquisition. This is a fork that reflects investors’ feelings about timing and execution. Some of the gap closed on Friday as Chevron stocks fell almost 1% and Exon fell nearly 3%.
RBC analyst Biraj Borkhataria said the arbitration was clearly a surge in Chevron’s stock, and many investors chose to stay on the sidelines during the process of being pulled out.
“Investor sentiment has shifted multiple times in the last 18 months. It is usually based on exon or chevron commentary at industry conferences, and both express their confidence in winning,” Volcatalia said in a memo.
(Reporting by Alnima Kumar of Bengaluru, Edited by Margherita Choi)
