Hess shareholders have given the green light to the merger with Chevron, valued at 53 billion dollars, registering the second largest oil company in the United States, to acquire an asset and obtain land in Exxon Mobil’s large finds in Guyana.
The merger of the Hess Company and Chevron
The deal has yet to pass regulatory approval and face a protracted arbitration dispute with Exxon and CNOOC, Hess’ partners in Guyana. This phase could see its resolution next month, according to Frederic Boucher, risk arbitrage analyst at Susquehanna Financial Group.
The real challenge lies in resolving the dispute brought by Exxon and CNOOC, who claim to have a right of first refusal on any sale of Hess assets in Guyana. To achieve approval, a majority of Hess’ 308 million outstanding shares were required to vote in favor of the agreement.
On the other hand, the approval represents a victory for CEO John Hess, who has put his reputation and the future of the company in jeopardy. This decision also addresses the demands of some shareholders who sought additional compensation for delays in the closing of the sale.
Acquisition and dispute
Mark Kelly, an analyst at MKP Advisors, noted that the transaction will be finalized if Chevron is able to overcome the arbitration with Exxon or reaches a settlement. This favorable vote has implications for both firms, because the acquisition of the lucrative Hess oil fields in Guyana would allow Chevron to mitigate the geopolitical risks associated with its TengizChevroil project in Kazakhstan, which relies heavily on transit through Russia to the Black Sea.
In addition, this acquisition would help Chevron offset cost overruns experienced in its liquefied natural gas projects. liquefied natural gas (LNG) projects in Australia (LNG) projects in Australia, which have been affected by labor and operational problems. According to Morningstar analyst Allen Good, Hess’ Guyana assets would supplement Chevron’s oil and gas reserves, providing a new avenue for production growth beyond its U.S. and Central Asian operations.
Hess shareholders will hold almost 15% of Chevron, a much larger company, and will have access to a dividend that is four times that of Hess. The approval also strengthens the companies’ position in any future negotiations with Exxon, which although it has not shown interest in acquiring Hess, has not ruled out the possibility of bidding for the assets in Guyana.
Chevron’s decisions
Allen Good said that although Chevron has cleared a significant hurdle, the uncertainty of arbitration in Guyana remains. Chevron, for its part, expects to conclude the FTC regulatory process soon and is confident that its position on the right of first refusal will be upheld in the arbitration.
Exxon owns 45% of the Stabroek block in Guyana and operates all of its production, along with CNOOC’s 25%, claims a right of first refusal on any sale of Hess’ 30% interest.
Shareholder advisory firm Institutional Shareholder Services had recommended voting to abstain and asked Hess to offer an incentive to shareholders due to the delay in the deal. John Hess spent the last month persuading large shareholders.
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Source: The New York Times
Photo: Shutterstock
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