Chevron's CEO Faces Challenges of a Lifetime with Hess Bid

By Sabrina Valle
Friday, March 8, 2024

Chevron CEO Michael Wirth is facing a head-to-head match with Exxon Mobil with his $53 billion bid for Hess and its stake in oil hotspot Guyana, and could wind up trapped in a dispute between two of South America’s biggest energy rivals.

On Wednesday, Exxon filed an arbitration claim that could block Hess' proposed merger with Chevron. The sale includes Hess' 30% stake in a consortium that has discovered more than 11 billion barrels of oil in Guyana's Stabroek offshore block, which analysts say has potential recoverable oil at upwards of 20 billion barrels.

Exxon, which holds a 45% share of the consortium, with Hess and CNOOC owning minority stakes, claims the operating agreement governing the group gives it a right of first refusal to any sale of Hess's Guyana oil assets.

The contest for a share of the largest oil discovery in almost two decades could soon test Wirth’s famously calm demeanor. But a deal would be a legacy-maker for Wirth, who is known at the second-largest U.S. oil firm as an affable but firm boss.

Wirth won accolades on Wall Street for his refusal to get involved in a bidding war for Anadarko Petroleum in 2019, and then moved to boost Chevron’s reserves through a series of small deals.

His ability to play a long-game served him well in Venezuela, where he held onto the company's properties there amid years of hyperinflation and punishing U.S. sanctions.

The 63-year-old executive declined to be interviewed.

A spokesperson, however, stressed the company remains "fully committed to the transaction, and is confident in our position. We look forward to closing the transaction."

Two broken deals?
If Exxon's challenge blocks Chevron's purchase, it would be the second time a deal slipped through Wirth's fingers. His $33 billion offer for Anadarko, just a year after he took over as Chevron CEO, was snatched away with a higher bid by Occidental Petroleum.

“The truth is that Wirth has been slow to come to the party and a step behind on almost everything,” said Bill Smead, founder and chairman of Smead Capital Management, who said Wirth also missed an opportunity in 2022 to buy Occidental with Anadarko's assets for $32 billion, less than the 2019 offer.

“Because of making decisions like that, he is in a food fight over assets in Guyana,” said Smead.

Wirth won a $1 billion breakup fee in the Anadarko loss, but Exxon said this week it would consider exercising its preemption right if Chevron pursues its bid. If Chevron drops the deal, Hess could be potentially off the hook for a $1.7 billion break up fee.

Exxon left open the prospect of a negotiated settlement.

Its arbitration claim before an international tribunal could take about six months or more to resolved, said Exxon Senior Vice President Neil Chapman, pushing back Chevron's goal of closing the deal by mid-year.

Hess on Thursday said it was reviewing the timeline for closing the deal.

Analysts said the dispute could go either way.

"It is still very possible" that Exxon sees the need to bid for Hess before a Chevron-Hess shareholder vote, which could happen in the next couple of months, said Mark Kelly, CEO of financial advisory firm MKP Advisors.

"Exxon has seemingly implied it really wants to own Hess’ stake in Guyana, so it potentially needs to put something competing on the table prior to a Chevron-Hess vote," he said.

Paul Sankey, an analyst with Sankey Research, said the other possibility is that Chevron is forced to pay Exxon to allow the deal to proceed.

"There's the possibility that (Chevron) cuts them a check and just says, "can you go away please? And there's the possibility that they (Exxon) goes to arbitration and delays the deal," he said.

Border tensions
Wirth’s misfortunes have piled up around the globe. Last autumn, he delayed for a second time a major expansion project in a Kazakhstan oilfield where it is the operator and Exxon is a partner.

Later, Venezuelan President Nicolas Maduro reactivated a century-old border dispute with Guyana and threatened to take over Guyana's oilfields by force.

“He (Wirth) has to stay super neutral and lay low,” while the two countries settle the dispute, said Francisco Monaldi, an expert on Latin American energy at Rice University’s Baker Institute for Public Policy.

"It would make sense for Chevron to treat Guyana an investment in which they are not making any decisions," he said. "It would make it easier for the Venezuelan government not to have to acknowledge that Chevron would be on both sides" of the dispute border.

As the only U.S. oil major that remained in Venezuela despite U.S. sanctions on the OPEC nation since 2019, Wirth faces a new challenge to its Venezuela operations.

Chevron last month produced about 180,000 barrels per day from its joint ventures in Venezuela - output that could again be barred from delivery to its U.S. customers if the sanctions are allowed to snap back.

"Everyone says he (Wirth) is a nice guy, he is in the right business, he will figure it out," Smead said. "If not this deal, he will get the next one."

(Reuters - Reporting by Sabrina Valle; Editing by Marguerita Choy)

Categories: Mergers & Acquisitions Industry News South America

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