Despite uncertainties over ExxonMobil arbitration, Hess shareholders greenlight merger with Chevron

Hess shareholders May 28 voted to approve a $53 billion acquisition of the large independent upstream oil and gas producer by Chevron, even as uncertainties posed by an arbitration dispute from ExxonMobil over Hess' Guyana stake continue.

After a special shareholder meeting, Hess said in a statement it had received the "necessary approval" from a majority of holders of its common stock to enable the merger with Chevron to close, a deal which was announced in October 2023 but was expected to close earlier in 2024.

Final voting results on proposals voted on at the meeting will be set down in a securities filing that Hess plans to file with the US Securities and Exchange Commission after certification by its inspector of election, the company said.

"We are very pleased that the majority of our stockholders recognize the compelling value of this strategic transaction and look forward to the successful completion of our merger with Chevron," Hess CEO John Hess said. "Together we will be positioned as a premier integrated energy company, with the leadership, asset portfolio and financial resources to deliver significant shareholder value for years to come."

Approval of the merger by Chevron shareholders was not required. However, Hess did say that completion of the merger remains subject to other closing conditions which include a "satisfactory resolution of ongoing arbitration proceedings regarding preemptive rights in the Starbroek Block joint operating agreement."

Hess said it and Chevron "are working to complete the merger as soon as practicable."

However, to many it looked like a toss-up going into the vote, since uncertainties over exactly what ExxonMobil sought from Hess' 30% Guyana stake. Even shortly before the vote, a couple of large Hess shareholders reportedly still wanted to wait until arbitration with ExxonMobil, which had rights of first refusal, was settled.

Post-vote, Chevron said it was "pleased" at the outcome.

"We anticipate moving the FTC regulatory process towards its conclusion in the coming weeks," Chevron said in a statement. "We are confident our position on the preemption right will be affirmed in arbitration and are working to advance the process on this straightforward matter. We look forward to completing the transaction and welcoming Hess to our company."

Mike Wirth, CEO of Chevron, has said repeatedly that the preemption right does not apply to the Stabroek joint operating agreement since Chevron's offer was for the entire Hess corporation, not simply the Guyana stake.

Wirth said during his company's Q1 call that Hess had asked the arbitration tribunal to hear the merits of the cases in Q3 with an outcome in Q4, and a close of the transaction "shortly thereafter."

"We see no legitimate reason to delay that timeline," he said during the late-April call. "It's consistent with what Exxon has outlined is what they would expect."

UBS analyst Josh Silverstein said he views the Hess shareholder vote as "positive" for Chevron.

"[But] to close the transaction, Chevron and Hess still need FTC (Federal Trade Commission) approval, which we see occurring around mid-year," Silverstein said. "Resolution in the ExxonMobil arbitration process would be the last piece, with a fourth-quarter 2024 estimated timeframe."

While Hess has sizeable production from the Bakken Shale and also operates several US Gulf of Mexico fields as well as offshore natural gas projects in Malaysia-Thailand, its stake in Guyana was looked upon as the "crown jewel" of the company's portfolio.

ExxonMobil operates the offshore Stabroek Block, which is said to be among the biggest industry finds in a decade and currently has three major fields producing about 600,000 b/d of oil and another three fields in varying stages of construction.

But the 30-plus significant finds on the block hold the promise of more oil than the 11 billion barrels of equivalent oil that the partners have so far announced, and both John Hess and ExxonMobil have held that the block holds "multi-billions" more barrels of oil than the current official estimate, as well as natural gas.

ExxonMobil holds a 45% stake in Stabroek while China's CNOOC also has 25% interest.