Hess Shareholders Approve Chevron Merger, But Legal Hurdles Loom Large

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Hess shareholders gave the green light to the proposed $53 billion merger with Chevron, a move that would grant Chevron a coveted stake in Guyana’s oilfields – a key asset currently controlled by Exxon Mobil. This acquisition would allow Chevron to diversify its operations and mitigate risks associated with its existing projects.

However, the path to finalization remains bumpy. While regulatory approval is anticipated next month based on recent precedents, a significant hurdle lies in the form of a legal challenge from Exxon and CNOOC. These companies claim they have the right of first refusal on any sale of Hess’s Guyana holdings and have initiated arbitration proceedings against Chevron. This dispute has the potential to drag on until 2025, delaying the deal’s closure.

By gaining a foothold in Guyana, Chevron could lessen its dependence on oil projects in Kazakhstan, a nation with a volatile political landscape. Currently, a significant portion of Chevron’s Kazakh oil is transported through Russia, presenting potential complications.

This acquisition could serve as a counterweight to the cost inflation plaguing Chevron’s Australian liquefied natural gas (LNG) projects, which have been hampered by operational and labor issues.

Guyana’s oilfields offer substantial reserves, providing Chevron with a new avenue for production growth beyond its existing holdings in the U.S. and Central Asia. Analyst Allen Good of Morningstar highlights this aspect, stating the acquisition would “fill out Chevron’s oil and gas reserves.”

Hess shareholders would become partial owners of the much larger Chevron, gaining access to a dividend yield that’s four times greater than what Hess currently offers.

The shareholder approval strengthens the combined companies’ position in any future negotiations with Exxon. While Exxon hasn’t expressed interest in acquiring the entirety of Hess, they haven’t ruled out a bid for the Guyana assets specifically. John Hess, CEO of Hess, spent the preceding month actively lobbying major shareholders to garner support for the merger, personally visiting or calling over 30 firms.

Chevron is confident of prevailing in the arbitration case with Exxon. However, Exxon remains resolute in its claim to first refusal rights on Hess’s Guyana stake. Proxy advisory firm Institutional Shareholder Services (ISS) even recommended that Hess shareholders abstain from voting and urged the company to offer additional compensation due to the potential delay. Regardless of the shareholder vote, Exxon’s legal challenge is likely to proceed, injecting uncertainty into the timeline.

In conclusion, the Hess-Chevron merger, if successful, would be a strategic win for both companies. However, the legal battle with Exxon casts a long shadow, potentially causing delays and requiring a clear resolution before the deal can be finalized.