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On Wednesday, Exxon filed an arbitration claim that could
block Hess' proposed merger with Chevron. The sale includes Hess' 30% stake in
a consortium that has discovered more than 11 billion barrels of oil in
Guyana's Stabroek offshore block, which analysts say has potential recoverable
oil at upwards of 20 billion barrels.
Exxon, which holds a 45% share of the consortium, with Hess
and CNOOC owning minority stakes, claims the operating agreement governing the
group gives it a right of first refusal to any sale of Hess's Guyana oil
assets.
The contest for a share of the largest oil discovery in
almost two decades could soon test Wirth’s famously calm demeanor. But a deal
would be a legacy-maker for Wirth, who is known at the second-largest U.S. oil
firm as an affable but firm boss.
Wirth won accolades on Wall Street for his refusal to get
involved in a bidding war for Anadarko Petroleum in 2019, and then moved to
boost Chevron’s reserves through a series of small deals.
His ability to play a long-game served him well in
Venezuela, where he held onto the company's properties there amid years of
hyperinflation and punishing U.S. sanctions.
The 63-year-old executive declined to be interviewed.
A spokesperson, however, stressed the company remains
"fully committed to the transaction, and is confident in our position. We
look forward to closing the transaction."
TWO BROKEN DEALS?
If Exxon's challenge blocks Chevron's purchase, it would be
the second time a deal slipped through Wirth's fingers. His $33 billion offer
for Anadarko, just a year after he took over as Chevron CEO, was snatched away
with a higher bid by Occidental Petroleum.
“The truth is that Wirth has been slow to come to the party
and a step behind on almost everything,” said Bill Smead, founder and chairman
of Smead Capital Management, who said Wirth also missed an opportunity in 2022
to buy Occidental with Anadarko's assets for $32 billion, less than the 2019
offer.
“Because of making decisions like that, he is in a food
fight over assets in Guyana,” said Smead.
Wirth won a $1 billion breakup fee in the Anadarko loss, but
Exxon said this week it would consider exercising its preemption right if
Chevron pursues its bid. If Chevron drops the deal, Hess could be potentially
off the hook for a $1.7 billion break up fee.
Exxon left open the prospect of a negotiated settlement.
Its arbitration claim before an international tribunal could
take about six months or more to resolved, said Exxon Senior Vice President
Neil Chapman, pushing back Chevron's goal of closing the deal by mid-year.
Hess on Thursday said it was reviewing the timeline for
closing the deal.
Analysts said the dispute could go either way.
"It is still very possible" that Exxon sees the
need to bid for Hess before a Chevron-Hess shareholder vote, which could happen
in the next couple of months, said Mark Kelly, CEO of financial advisory firm
MKP Advisors.
"Exxon has seemingly implied it really wants to own
Hess’ stake in Guyana, so it potentially needs to put something competing on
the table prior to a Chevron-Hess vote," he said.
Paul Sankey, an analyst with Sankey Research, said the other
possibility is that Chevron is forced to pay Exxon to allow the deal to
proceed.
"There's the possibility that (Chevron) cuts them a
check and just says, "can you go away please? And there's the possibility
that they (Exxon) goes to arbitration and delays the deal," he said.
BORDER TENSIONS
Wirth’s misfortunes have piled up around the globe. Last
autumn, he delayed for a second time a major expansion project in a Kazakhstan
oilfield where it is the operator and Exxon is a partner.
Later, Venezuelan President Nicolas Maduro reactivated a
century-old border dispute with Guyana and threatened to take over Guyana's
oilfields by force.
“He (Wirth) has to stay super neutral and lay low,” while
the two countries settle the dispute, said Francisco Monaldi, an expert on
Latin American energy at Rice University’s Baker Institute for Public Policy.
"It would make sense for Chevron to treat Guyana an
investment in which they are not making any decisions," he said. "It
would make it easier for the Venezuelan government not to have to acknowledge
that Chevron would be on both sides" of the dispute border.
As the only U.S. oil major that remained in Venezuela
despite U.S. sanctions on the OPEC nation since 2019, Wirth faces a new
challenge to its Venezuela operations.
Chevron last month produced about 180,000 barrels per day
from its joint ventures in Venezuela - output that could again be barred from
delivery to its U.S. customers if the sanctions are allowed to snap back.
"Everyone says he (Wirth) is a nice guy, he is in the
right business, he will figure it out," Smead said. "If not this
deal, he will get the next one." -Reuters