Hess shareholders will vote Tuesday on the New York-headquartered oil company’s pending acquisition by Chevron for $53 billion, as the timeline for when the deal may close has become increasingly murky with the companies locked in a dispute with Exxon Mobil.
The pending deal is in jeopardy amid Exxon’s claim a right of first refusal over Hess’ assets in Guyana under a joint operating agreement that governs a massive offshore oil patch called the Stabroek Block.
Hess has a 30% stake in the Stabroek Block, while Exxon leads the development with a 45% stake. China National Offshore Oil Corp. holds the remaining 25%.
Exxon filed for arbitration in March to defend the rights it claims under the joint operating agreement. Chevron and Hess have told investors the pending deal would terminate if Exxon prevails.
Institutional Shareholder Services called for Hess shareholders to abstain from the vote on the merger agreement to allow for more details to emerge on how long the arbitration process will take.
ISS said Chevron and Hess did not promptly notify shareholders of the risk posed by the joint operating agreement, waiting months after the deal was announced. Hess shareholders would bear the risk if the deal terminates because Chevron is not obligated to pay a termination fee, according to ISS.
Shareholders would also not be entitled to Chevron’s dividend during the arbitration process, according to ISS. The dividend was touted by Hess as one of the main benefits of the merger, according to ISS.
Glass Lewis, on the other hand, recommended that shareholders vote in favor of the deal. The firm acknowledged that the dispute with Exxon has created uncertainty, but said “the strategic and financial merits of the proposed merger are sound and reasonable, on balance.”
Ahead of the vote, Hess shares were trading at around $152, which means the deal spread has widened since when the transaction was announced. That suggests some investors fear the agreement is at risk.
The Chevron-Hess deal was originally slated to close in the first half of 2024, but that timeline has been delayed due to the Exxon factor. Chevron CEO Mike Wirth told analysts on a conference call last month that Hess has asked the arbitration court to issue a ruling in the fourth quarter, which should allow the companies “to close the transaction shortly thereafter.”
Exxon CEO Darren Woods told CNBC in April that he expects arbitration to drag into 2025. The CEO has said Exxon does not intend to make a bid for Hess. Exxon is seeking to confirm its rights under the joint operating agreement and find out the value placed on Hess’ Guyana assets under the deal, Woods said.
Chevron has repeatedly maintained that the Exxon’s claims under the joint operating agreement do not apply to its acquisition of Hess. But Woods is confident that his company will prevail in arbitration, telling CNBC last month that the oil major wrote the agreement.
If Exxon prevails and the Chevron-Hess deal terminates, Hess would remain a stand-alone company and maintain its stake in the Stabroek Block.
The Chevron-Hess pact is also facing scrutiny from the Federal Trade Commission. Wirth said he expects the FTC’s review “to be substantially complete” by the middle of the year.