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Key Takeaways
- Chevron warned its $53 billion acquisition of Hess could be jeopardized by a joint agreement on an offshore oil field in Guyana to which Hess is a party.
- ExxonMobil and China National Offshore Oil Corporation have stakes in the Guyana site, and the deal allows them the right of first refusal on any changes in ownership.
- Chevron said if negotiations with ExxonMobil and CNOOC don’t produce acceptable results, the Hess purchase might not happen.
Chevron (CVX) shares fell 2% in intraday trading Tuesday after the energy giant warned its planned $53 billion purchase of Hess (HES) could be jeopardized by a challenge from ExxonMobil (XOM) and China National Offshore Oil Corporation (CNOOC).
The dispute centers on a joint operating agreement (JOA) signed more than a decade ago relating to the Stabroek Block offshore oil field in Guyana. Hess entered the deal in 2014 when it bought the stake owned by Shell (SHEL), giving it 30% of the ExxonMobil-run consortium. A stipulation in the JOA allowed existing partners, such as ExxonMobil and CNOOC, to participate in any changes in ownership.
Chevron said in a regulatory filing Tuesday that it is in discussions with the two firms regarding their right of first refusal in the JOA. It said that if the talks don’t result in an acceptable resolution and, if pursued, arbitration, “then there would be a failure of a closing condition under the Merger Agreement, in which case the merger would not close.”
Chevron added that the Hess transaction might not happen “within the time frame the company anticipates or at all, which could have adverse effects on Chevron.”
The oil giant noted that if the acquisition doesn’t go through, it could cause financial results to be different from expectations by Chevron or the investment community. In addition, “the company may not achieve the anticipated benefits of the acquisition, and the acquisition may disrupt the company’s current plans or operations.”
Chevron announced it was buying Hess in October, and getting access to the Guyana site was a key factor in driving the sale.
Chevron shares were down 2.1% at $151.27 as of noon ET Tuesday, while Hess shares were 3.1% lower at $145.35. ExxonMobil shares were 0.1% lower at $104.16.