Feb 27, 2024
Chevron’s ‘Loose End’ on Hess Wasn’t Flagged, Tectonic CEO Says
, Bloomberg News
(Bloomberg) -- Chevron Corp. should have anticipated Exxon Mobil Corp.’s ability to derail a takeover of a massive oilfield stake in Guyana, a snag that threatens to unravel a roughly $50 billion acquisition, said veteran energy investor Haag Sherman.
The chief executive of Tectonic Financial Inc. was surprised Chevron didn’t earlier warn investors of the risk that its planned purchase of Hess Corp. could fall apart if Exxon exercises its right of first refusal to Hess’ 30% interest in the Exxon-led Stabroek discovery off the coast of Guyana, Sherman said during an interview in Houston on Tuesday. Chevron announced the tie-up with Hess more than four months ago.
Exxon’s surprise disclosure late Monday that it, along with partner Cnooc Ltd., may elbow Chevron aside and take the stake for themselves sent Hess shares down more than 4% for one of the worst performances in the S&P 500 Index. Right of first refusal is a standard clause in high-risk oil joint ventures.
Read More: Chevron, Hess Slip as Exxon Mulls Bid to Block Guyana Deal
“If I’m Chevron, that’s a loose end I would want tied up,” said Sherman, who helps oversees $6.7 billion in assets. “It may have been just, ‘We’re going to take that risk. It’s an asset we like.’”
Chevron didn’t immediately respond to a request for comment. In response to Monday’s announcement, Chevron earlier said there’s no possible scenario whereby Exxon or Cnooc could acquire Hess’ interest in Guyana.
A high-stakes battle for Stabroek — the largest oil discovery of the past decade — would mark a rare public dispute between North America’s largest supermajors. Exxon, which operates the project, first found oil in Guyanese waters in 2015 and has since discovered 11 billion barrels. The company expects production there to double to 1.2 million barrels a day by 2027.
“It is somewhat surprising, as a former M&A lawyer, that this really wasn’t addressed up front before the deal was inked,” Sherman told Bloomberg Television. “This deal was pretty far down the road.”
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