Exxon deals blow to Chevron-Hess deal with arbitration filing

Exxon Mobil Corp. filed for arbitration to retain preemption rights in a giant Guyanese oil field, threatening Chevron Corp.'s attempt to acquire a stake via its pending $53 billion takeover of Hess Corp.

Exxon filed for arbitration in the International Chamber of Commerce in Paris on Wednesday, Senior Vice President Neil Chapman said during a Morgan Stanley conference. Exxon, as 45% owner and operator of the Guyana project, believes it has a right of first refusal over any change of hands in Hess's 30% stake.

Exxon's move is a blow not only to Chevron and Hess, but also to several hedge funds wagering billions in arbitrage bets pegged to the deal's closing. The ICC filing represents a major escalation in the unprecedented public dispute between America's biggest oil drillers over the world's fastest-growing major crude development.

Chevron's deal to buy Hess amounts to a circumvention of Exxon's pre-emption rights, Chapman said. While the joint-operating agreement with Hess and other partners in Guyana is confidential, Exxon is “very, very confident” in its position, he said.

“We understand the intent of this language of the whole contract because we wrote it,” Chapman said. “The Chevron-Hess transaction, what it really did, is it attempted to circumvent the commercial purpose” of the agreement.

Chevron and Hess didn't immediately respond to requests for comment.

Guyana's Stabroek block is the main reason why Chevron wants to buy Hess, and the California-based oil giant has said it would cancel the entire deal if the company's stake was not included in transaction.

Hess shares fell as much as 2.5% on the news. Chevron pared its earlier gains and was up 0.8% at 12:35 p.m. in New York.

Spreads between the shares of Chevron and Hess, which agreed to the all-stock deal in October, have also been roiled by Venezuela's repeated claims to two-thirds of Guyana's territory, threatening the South American country's oil fields.

Arbitration at the ICC typically takes months, Chapman said. Previously, Chevron had been expected to close the deal by the middle of this year. Hess would pay Chevron a break-up fee of about $1.7 billion if the transaction falls apart.

There's little possibility of Exxon immediately buying Hess' 30% stake in the Guyana field given that Chevron would cancel the deal if it lost at arbitration. But Chapman did not rule out buying it in the future.

“What Chevron and Hess have said is that if pre-emption rights exist, there's no transaction,” he said. “We're going to arbitrate to make sure we secure our pre-emption rights. If there is pre-emption, and we do have the opportunity, then what we would do is we would look at the potential values, see if it's accretive to our portfolio, see if it's accretive to us as a shareholder and then decide.”