Exxon, Chevron set stage for race for prize assets

The Star

20-07-2025

The high-stakes clash between Exxon Mobil and Chevron over a prized South American oilfield may be a sign of what's to come in the oil and gas industry as competition for a shrinking pool of prime assets heats up.
Chevron is set to finalise its US$53bil acquisition of US rival Hess after the companies prevailed in a legal dispute with Exxon over Hess' 30% stake in Guyana's fast-growing Stabroek oil block.
The ruling by the Paris-based International Chamber of Commerce marks a key win for Chevron chief executive Mike Wirth, who targeted the Hess acquisition to grow the company's production and keep pace with larger rival Exxon's rapid expansion.
The Hess deal, announced in October 2023, was delayed after Exxon, which holds a 45% stake in Stabroek, and the field's third partner China National Offshore Oil Corp argued that they had a contractual right of first refusal to purchase Hess's stake in the block.
In fact, the multi-billion-US dollar dispute hinged on the interpretation of a single sentence in the joint operating agreement.
Exxon's decision to file this arbitration was likely motivated by a desire to hamper the growth strategy of its key US rival, the latest move in a decades-long rivalry that has helped shape the US energy sector.
Stabroek is a highly attractive asset, with 11 billion barrels of oil reserves and production costs of only around US$20 a barrel, among the lowest in the world, according to consultancy Rystad Energy.
The Guyanese field's production has soared from zero in 2019 to 668,000 barrels per day (bpd) by the end of March, and is forecast to nearly double to 1.3 million bpd by the end of 2027.
Arms race
Exxon and Chevron both trace their roots to Standard Oil, the conglomerate formed by John D. Rockefeller in 1870 that came to dominate the American oil industry before being broken up by the US government in 1911.
In the past decade, the two majors have competed fiercely for dominance in US shale oil.
Chevron had an early advantage given its ownership of large swathes of land in the Permian basin, the shale heartland. But Exxon regained ground in 2010 with its US$41bil acquisition of natural gas producer XTO.
It then cemented its position as the largest US producer in October 2023 with its acquisition of US shale producer Pioneer Natural Resources for US$60bil. Chevron responded quickly, however, announcing that it had agreed to acquire Hess only 12 days after Exxon's Pioneer deal.
The Hess deal should help Chevron keep pace with Exxon moving forward. Chevron's production is now expected to exceed four million bpd by 2030 from 3.4 million bpd in the first quarter of this year.
By contrast, Exxon expects its output to grow from 4.5 million bpd in the first quarter to 5.4 million bpd by the end of the decade.
Dwindling reserves
Oil and gas companies are facing a future with limited options for building reserves as the unexplored frontier shrinks and shareholders push for cost control.
These firms replenish their reserves not only to grow output but also to offset existing fields' natural decline.
Depletion has been a major problem for Chevron, whose reserve replacement ratio slid to negative 4% last year, with reserves falling to their lowest point in at least a decade at 9.8 billion barrels, according to LSEG data.
That's the equivalent to eight years of production, down from 10 years in 2023, and compared with Exxon's 12 years in 2024.
Reserves can be increased either through exploration, a high-risk, high-reward activity, or by acquiring assets and companies.
Energy giants have invested billions in exploration over the decades, which has led to the discovery of resources in new basins such as the North Sea, Angola, Brazil and Indonesia.
But this activity has slowed in recent years as companies have sought to cut spending to appease shareholders.
Moreover, there are fewer accessible fields to tap. Although the world holds vast oil and gas reserves, sufficient to supply around 50 years of current oil consumption, not all resources are created equal.
First, many resources are simply far too expensive to develop because of depth, complexity or remoteness.
Additionally, over two-thirds of the world's oil reserves are located in countries where Western companies have restricted access.
This includes Iran, Venezuela and Russia as well as Organization of Petroleum Exporting Countries (Opec) whose strict terms make operations less attractive for foreign investors.
This all explains why the discovery of enormous, low-cost oil resources in Guyana a decade ago was considered such a boon for Western energy companies – and why the two biggest US producers were willing to spend billions battling for access to a single field there.
First shot
The latest high-profile clash between Exxon and Chevron may be an indication of what the industry can expect in the coming years as competition for low-cost resources intensifies amid the world's transition away from fossil fuels.
No one knows exactly when global oil demand will peak. While the International Energy Agency, the global energy watchdog, expects oil consumption to crest by the end of this decade, Opec forecasts demand to grow into 2050.
But, regardless, the industry appears to be going through a shift, and the Exxon-Chevron clash, one of the most expensive and consequential legal battles in the sector's history, may be a harbinger of things to come. — Reuters
Ron Bousso is the Reuters energy columnist. The views expressed here are the writer's own.