April 02, 2024 [Rigzone]- Hess Corp. and Chevron Corp. have insisted they can complete their merger mid-2024 despite arbitral proceedings launched by Exxon Mobil Corp. over Guyana’s Stabroek block.
“The parties currently expect to complete the transaction in the middle of 2024”, Hess said in a letter to shareholders, made public as an attachment to a recent regulatory disclosure by Chevron. The joint announcement of the merger last year gave the first half of 2024 as the expected date of closure.
The merger would result in Chevron taking over Hess’ stake in Stabroek. ExxonMobil operates the offshore block with a 45 percent interest through Esso Exploration and Production Guyana Ltd., while Hess subsidiary Hess Guyana Exploration Ltd. (HEGL) holds a 30 percent interest. China National Offshore Oil Corp’s CNOOC Petroleum Guyana Ltd. holds the remaining 25 percent.
However ExxonMobil initiated arbitration proceedings March 6 before the International Chamber of Commerce tribunal asserting that a pre-emption right accorded to each of the three parties in the Stabroek joint operating agreement (JOA) applies to Chevron’s acquisition of Hess. A pre-emption right or right of first refusal (ROFR) allows a partner to prevent a co-venturer from selling a stake to an outside party without first offering the stake to the partner.
Hess filed for arbitration March 11 with the opposite claim. China’s state-owned CNOOC followed suit March 15 with the same claim as ExxonMobil.
The cases have been confirmed in filings with the U.S. Securities and Exchange Commission (SEC).
In a simplification of the court process, Hess said in the letter the three Stabroek co-venturers agreed to unify the arbitration cases into one. “On March 26, 2024, following a joint application by the parties, the authority administering the arbitration consolidated the three arbitration proceedings”, Hess told stockholders in the letter.
“Chevron and Hess believe that the Stabroek ROFR does not apply to the merger due to the structure of the merger and the language of the Stabroek ROFR provisions”, Hess said.
“HGEL intends to vigorously defend its position in the arbitration proceedings and expects the arbitration tribunal will confirm that the Stabroek ROFR does not apply to the merger”, Hess added.
“If the arbitration does not result in a confirmation that the Stabroek ROFR is inapplicable to the merger, and if Chevron, Hess, Exxon and/or CNOOC do not otherwise agree upon an acceptable resolution, then there would be a failure of a closing condition under the merger agreement, in which case the merger would not close, and, pursuant to the terms of the Stabroek JOA, the Exxon affiliate and the CNOOC affiliate would cease to have rights under the Stabroek ROFR with respect to the merger”, the letter said.
“In that event, Hess would remain an independent public company and would continue to own its participating interest in the Stabroek Block.
“Based on the express terms of the Stabroek JOA, Chevron and Hess do not believe there is any material likelihood that the circumstances described in this paragraph will occur”.
With discovered recoverable resources of over 11 billion barrels of oil equivalent according to Hess, the 6.6 million-acre block is the main reason behind Chevron’s $60 billion purchase of Hess announced October 23.
Chevron or Hess may themselves junk the merger deal if completion is not achieved by October 22, 2024, or if extended, April 22, 2025, or October 22, 2025, under the terms of the agreement, according to Hess.
The merger agreement had set April 18, 2024, as the end date but both New York-based Hess and California-based Chevron have waived the termination right available to either party with respect to the April end date, according to Hess.
In another potential hurdle, Guyanese authorities could assert a requisite approval on their part over the merger, Hess said.
“As of the date of this proxy statement/prospectus, the parties do not anticipate that any such approval will be required from any Guyanese governmental body, agency or authority”, read the letter.
Meanwhile in the U.S., Chevron and Hess continue to work to clear an anti-trust review by the Federal Trade Commission, Hess said in the letter.
While the letter voiced confidence about the closure timeline, Hess had told employees in an email March 6, 2024, a copy of which was posted on the SEC, that the consummation could be delayed due to the arbitration.
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