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A New Beginning: Exxon, Chevron Now Partners In Guyana

A New Beginning: Exxon, Chevron Now Partners In Guyana

Forbes3 days ago
John Hess, chief executive officer of Hess Corp., left, and Mike Wirth, chairman and chief executive ... More officer of Chevron Corp., during a Bloomberg Television interview in New York, US, on Monday, Oct. 23, 2023. Chevron Corp. agreed to buy Hess Corp. for $53 billion, a deal aimed at boosting production growth as the US oil industry bets on an enduring future for fossil fuels. Photographer: Jeenah Moon/Bloomberg
ExxonMobil will now have a new, very familiar partner in its massive project in the deepwaters off the coast of tiny South American nation Guyana after Chevron emerged the winner in a 16-month-long arbitration case on Friday.
Chevron, like ExxonMobil one of the legendary 'seven sisters' companies created following the 1911 breakup of the Standard Oil monopoly, announced a $53 billion takeover of U.S. independent producer Hess Corp. in October 2023. Chevron was initially confident the deal would have little trouble gaining necessary approvals from the SEC and other regulators, but ExxonMobil had other ideas.
Exxon, a 45 percent owner and operator of the three-company consortium which has developed the prolific Stabroek Block and other areas offshore Guyana over the last decade, filed a challenge to the arrangement in March 2024. While Hess has other significant assets, including a major position in the Bakken Shale of North Dakota, its 30% stake in the Guyana development is widely considered the key prize for Chevron in the acquisition.
'This merger of two great American companies brings together the best in the industry,' said Chevron Chairman and CEO Mike Wirth said in a statement. 'The combination enhances and extends our growth profile well into the next decade, which we believe will drive greater long-term value to shareholders.'
Exxon Mobil Chairman & CEO Darren Woods speaks during the CERAWeek oil summit in Houston, Texas, on ... More March 18, 2024. (Photo by Mark Felix / AFP) (Photo by MARK FELIX/AFP via Getty Images)
In a press release, an ExxonMobil spokesperson said, 'We disagree with the ICC panel's interpretation but respect the arbitration and dispute resolution process. As we've said before, ExxonMobil and CNOOC (the third partner in the consortium) are aligned that we had a duty to ensure contract terms are always adhered to and not set a bad precedent for ourselves and industry. Given the significant value we've created in the development of the Guyana resource, we believed we had a clear duty to our investors to consider our preemption rights to protect the value we created through our innovation and hard work at a time when no one knew just how successful this venture would become. We welcome Chevron to the venture and look forward to continued industry-leading performance and value creation in Guyana for all parties involved.'
The consortium's operations are governed by a joint operating agreement (JOA) which contains language allowing existing partners to pre-empt sales of interests like Hess's to third parties by exercising a right to match the offer. In addition to the partners, ExxonMobil expressed concern at the time that the rights and desires of the Guyanese government, a major beneficiary from royalties and fees related to the project, were also protected.
Shortly after the challenge was filed, ExxonMobil senior vice-president Neil Chapman told a conference that, 'We understand the intent of this language of the whole contract because we wrote it,' adding, 'The Chevron-Hess transaction, what it really did, is it attempted to circumvent the commercial purpose' of the agreement. But ultimately, arbitrators at the International Chamber of Commerce ruled for Chevron.
ExxonMobil initiated exploratory efforts at the Stabroek Block in 2008 and made its initial discovery with the successful completion of the Liza-1 well in 2015. The Liza-1 was drilled in a depth of more than 5,700 feet of water with a total depth of 17,825 feet. Since that time, the Consortium partners have announced a long series of new discoveries, raising total current production levels to over 650,000 barrels of oil per day (bopd). In its 2024 Annual Report, ExxonMobil says it expects to double production levels to more than 1.3 million bopd by the end of 2027, and that payments to the government of Guyana, a tiny nation with around 800,000 inhabitants, will total more than $10 billion per year by the end of the decade.
Chevron says the closure of this huge takeover will be accretive to its bottom line and 'is expected to drive significant free cash flow and production growth into the 2030s,' which is likely an understatement. Guyana has for a decade ranked at the top of major international oil developments and is likely to remain so for years to come. So long, that is, as these two former 'sisters' and their Chinese partner are able to settle into a cooperative and productive relationship.
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