Chevron’s $53 billion merger with Hess moves forward but not out of woods yet as arbitration keeps suspense alive

U.S.-headquartered energy giant Chevron and its rival, Hess Corporation, have managed to get the Federal Trade Commission (FTC) antitrust review out of the way despite the move to bar the latter’s Chief Executive Officer (CEO) from joining the oil major’s board on the grounds of his previous communications with global competitors such as the OPEC cartel. A cliffhanger in the form of an ongoing arbitration process Hess’ Stabroek block partners have initiated over the assets off the coast of Guyana is making the outcome of the proposed merger less clear-cut, leaving it still shrouded in mystery.

FPSO Liza Unity; Source: SBM Offshore

While the Chevron-Hess merger has passed the FTC antitrust review with flying colors, satisfying one of the closing conditions for the transaction, the Federal Trade Commission’s action to resolve antitrust concerns related to the acquisition ended up approving a proposed consent order that would prohibit Chevron from appointing John B. Hess, Hess’ CEO, to its board of directors.

Commenting on the clearance of the FTC antitrust review hurdle, Mike Wirth, Chevron Chairman and CEO, remarked: “This is an important step toward completing the merger, which will benefit our shareholders, the industry, and the country of Guyana, and add world class assets to our already advantaged portfolio. We look forward to completing the transaction and welcoming Hess into our company.”

Based on the FTC’s complaint, if Mr. Hess were to join Chevron’s board, he would allegedly gain a much larger platform to amplify his supportive messaging about OPEC’s market stability goals, increasing the likelihood that the U.S. energy giant could align its production with the cartel’s output decisions to maintain higher oil price, thud, heightening the risk of harm to competition, including meaningfully increasing the risk of industry coordination.

With votes 3-2 in favor of accepting the consent agreement due to Hess CEO’s alleged public and private communications with the past and current Secretaries General of the Organization of Petroleum Exporting Countries (OPEC) and an official from Saudi Arabia during which he encouraged higher prices in the global oil market, the FTC’s proposed consent order would prohibit Chevron from nominating, designating, or appointing Mr. Hess to the Chevron board, and from allowing him to serve in an advisory or consulting capacity to, or as a representative of, Chevron or its board.

However, the proposed consent order would still enable Chevron to consult with Mr. Hess and allow him to serve as its advisor, consultant, or representative, solely related to interactions and discussions with Guyanese government officials about Hess’ oil-related and health ministry-related activities in Guyana, and the Salk Institute’s Harnessing Plants Initiative. Lina M. Khan, FTC’s Chair, issued a statement in support of the order, joined by commissioners Rebecca Kelly Slaughter and Alvaro Bedoya. On the other hand, commissioners Melissa Holyoak and Andrew N. Ferguson each issued a dissenting statement.

Henry Liu, Director of the FTC’s Bureau of Competition, commented: “Mr. Hess’s communications with competitors about global oil output and other dimensions of crude oil market competition disqualify him from serving on Chevron’s board of directors. The FTC will use all its available enforcement tools to protect competition in this vital market and help ensure American consumers benefit from lower prices at the pump.”

In response, Hess’ board of directors took a stand to support and defend its CEO, expressing its belief that the competitive concern raised by the FTC about Mr. Hess’ communications is without merit. The U.S. company further emphasized that all public and private communications with OPEC officials were consistent with its CEO’s communications with U.S. government officials, the International Energy Agency (IEA), and global business leaders on what would be needed to ensure an affordable and orderly energy transition.

“Rather than accept reality and any political blowback, the Majority creates a sequel to the fairy tale in Exxon where Section 7 of the Clayton Act means whatever the Majority needs it to mean to appease political demands. Unfortunately for Mr. Hess, the CEO of Hess Corporation, the author of every fairy tale must also fabricate a villain, and today’s action unjustifiably gave him that label,” wrote Commissioner Holyoak in her dissent while explaining that the complaint does not take issue with Chevron’s acquisition of Hess Corporation’s assets.

Holyoak further added: “Nor could it. There is no evidence to suggest Chevron, post-merger, could diminish competition in the global market for oil. Even if one were to accept the Majority’s fetish with concentration levels, post-merger Chevron would have a low single-digit share of the world market for oil and natural gas. And the delta in concentration from the merger is miniscule. Thus, the tangible and intangible assets of Hess Corporation have nothing to do with the violation of law—it’s all about the acquisition of Mr. Hess.”

Regardless of the stance taken on the FTC’s allegations, Hess and Chevron have agreed that Mr. Hess will not be appointed to the Chevron board to address the concern raised by the FTC about his communications with a limited number of OPEC officials, thus, facilitating the completion of the merger.

“I have the utmost respect for John, the company he has built, and the contributions he has made to our industry. It is unfortunate that our board of directors will not get the benefit of his decades of global experience, but we look forward to drawing upon his knowledge, relationships and experience in Guyana through his service as an advisor to Chevron,” added Wirth.

The duo has also confirmed that  Mr. Hess will serve as an advisor and representative for Chevron on government relations and social investments in Guyana, as well as in support of the Salk Institute’s Harnessing Plants Initiative.

“We are very pleased that our merger with Chevron has cleared this significant regulatory hurdle. This transaction continues to be an outstanding deal for Hess and Chevron shareholders and will create a premier integrated energy company that is ideally positioned for the energy transition,” highlighted Hess’ CEO.

Hess Corporation, which claims to have had the highest cash flow reinvestment rate of any oil company – majors and independents – over the past five years, pinpoints itself as the only oil company to reinvest more than its cash flow to grow the oil and gas supply.

Hess’ CEO noted: “I am proud of the role our company has played to meet the world’s energy needs safely and responsibly. I look forward to successfully completing our company’s merger with Chevron and delivering value for our shareholders.”

Currently, the completion of the merger remains subject to the merger agreement’s closing conditions, including the satisfactory resolution of ongoing arbitration proceedings, which ExxonMobil and CNOOC decided to file before the International Chamber of Commerce, regarding preemptive rights in the Stabroek block joint operating agreement, as they are convinced that they have a right to a first refusal over any sale of the U.S. firm’s 30% interest in the oil-rich offshore block in Guyana.

Guyana has emerged as the world’s fastest-growing oil region since its first offshore discovery in 2015. The Stabroek block, which covers 6.6 million acres or 26,800 square kilometers, is operated by ExxonMobil with a 45% interest. The company’s partners in the block are Hess Guyana Exploration (30%) and CNOOC Petroleum Guyana (25%).

While the arbitration proceedings have the potential to delay the merger with Chevron, as they can take months to be sorted out, stretching potentially into 2025, both Hess and Chevron claim the rights the Stabroek block partners seek do not apply. Depending on the outcome of the arbitration process, the merger might even fall through.

“Oil and gas are going to be needed for decades to come and the key challenge is long term investment. For more than 10 years, I have advocated for a significant increase in global investment, both in oil and gas and renewable energy, to have the necessary supply to keep energy affordable and secure for American consumers in the future,” underlined Hess’ CEO.

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