Chevron says $53B Hess acquisition in limbo

Chevron warned Monday that its pending $53 billion acquisition of Hess may be in jeopardy because it will require the approval of Exxon Mobil and a Chinese national oil company, which both hold rights to development of an oilfield off the coast of the South American nation Guyana.

The disclosure was reported in a filing with the Securities and Exchange Commission.

Chevron's acquisition of Hess would add this major oilfield in Guyana as well as shale properties in the Bakken Formation in North Dakota. Guyana is a country of 791,000 people that is poised to become the world's fourth-largest offshore oil producer, placing it ahead of Qatar, the United States, Mexico and Norway. It has become a major producer in recent years, with oil giants including Exxon Mobil, the China National Offshore Oil Co. (CNOOC) and Hess squared off in a heated competition for highly lucrative oilfields in South America.

Chevron said it's been engaged in discussions with Exxon and CNOOC. Both companies hold rights of first refusal for decisions regarding the oilfield in question, known as the Stabroek Block. Exxon Mobil operates the Stabroek Block and holds 45% interest. Hess holds 30% interest and CNOOC holds the remaining 25% interest. Production capacity at the field is expected to reach more than 1.2 million barrels per day by the end of 2027, Exxon said in November.

If those discussions and subsequent arbitration fail to set aside those first refusal rights, Chevron said, "the merger would not close."

Exxon seems to believe that it should be rewarded for the financial risks it has taken in developing Guyana's oil resources and the technological contributions it has brought to the country.

"We owe it to our investors and partners to consider our preemption rights in place under our joint operating agreement to ensure we preserve our right to realize the significant value we've created and are entitled to in the Guyana asset," Exxon said in a statement.

Chevron said in a securities filing that the companies had been engaged in what it called "constructive discussions" on the situation and said it believed the talks would lead to an outcome that would allow its merger with Hess to proceed. However, Chevron warned that if the talks did not "result in an acceptable resolution," the deal might be called off.

Chevron stressed that there was "no possible scenario" in which Exxon could acquire the Hess position. If the merger failed, Hess would go on operating as an independent company, Chevron said.

Information for this article was contributed by The Associated Press and Stanley Reed of The New York Times.

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