The 20-month feud between the Western Hemisphere’s two most powerful oil companies over the biggest offshore discovery in a generation hinged on a single clause of a contract few people have ever seen.
The passage in a confidential agreement signed more than a decade ago that governs how producers work together in Guyana’s booming oil field was the basis for Exxon Mobil Corp.’s arbitration case that threatened to undo Chevron Corp.’s $53 billion takeover of Hess Corp.
The ensuing dispute upended Chevron’s and Hess’s strategies for nearly two years and threatened to mar the legacies of both companies’ CEOs. The story behind how it unfolded shows how American oil executives’ usual cordial relationships were pushed to the breaking point when a $1 trillion discovery was at stake.
“It should have been resolved much quicker,” Chevron CEO Mike Wirth said in an interview Friday. “This was a straightforward, plain reading of a contract.”
Exxon said it was obligated to defend its rights under the agreement.
“We had a clear duty to our investors to consider our preemption rights to protect the value we created,” the company said in a statement. “We welcome Chevron to the venture.”
The following account is based on Bloomberg reporting over nearly two years, including on- and off-the-record conversations with more than two dozen analysts, fund managers, traders and current and former company employees.
It began toward the end of 2023, when the US oil industry was basking in the aftermath of the price surge caused by Russia’s invasion of Ukraine. In a blow to the clean-energy transition, the war had underscored the continued importance of fossil fuels and furnished producers with record profits.
Keen to take advantage, US executives embarked on a corporate takeover spree that would reach nearly $500 billion over just three years. Exxon scored the biggest of them, buying Pioneer Natural Resources Co. for $60 billion in October 2023.
Not to be outdone, Chevron announced an agreement to buy Hess for $53 billion less than two weeks later. Hess’s minority stake in Guyana’s massive Stabroek Block was “the industry’s most attractive, long-lived growth asset” Wirth said on the day of the announcement. It was high praise for a project discovered and operated by its arch-rival, Exxon.
The warmth between the Chevron and Hess CEOs was palpable as they sat together for an interview on Bloomberg TV in New York. Wirth is the “best CEO in the energy industry,” John Hess said. Wirth repaid the compliment, praising Hess’s “key relationships with partners and governments around the world.”
But the bonhomie did not extend to Texas. There, Exxon executives bristled at Chevron talking about the Guyana oil field as if they already owned it.
Exxon made the giant offshore discovery back in 2015 after almost 30 other companies – including Chevron – were offered the chance to buy into the first wildcat well but walked away. Hess and China’s Cnooc Ltd. ended up as partners in the Stabroek Block, buying stakes worth 30% and 25% respectively. Exxon remained the lead operator, with 45% ownership. In less than a decade, Stabroek had become one of the biggest and fastest-growing oil fields outside of OPEC, with 11 billion barrels of recoverable reserves.
For Chevron and Hess, the deal was simple. Chevron would buy Hess in an all-stock transaction and assume ownership of the smaller company’s share of Stabroek. But there was a wrinkle. The joint operating agreement governing the Stabroek partnership contained a right-of-first-refusal clause. If one company decided to sell its stake, it must first be offered to the other two partners.
Lawyers for Chevron and Hess had studied the clause in detail during the due diligence process and concluded it did not apply because their deal was structured as a corporate merger rather than an asset sale.
But neither Chevron or Hess had reached an agreement over this interpretation with Exxon before their public announcement. To Exxon, Chevron’s proposed purchase amounted to a change of control in the Hess stake. And thus, the company believed it triggered the right-of-first-refusal.
The companies began talks in private but failed to make much progress. In early 2024, Chevron disclosed the dispute in a regulatory filing. Initially the market reaction was muted, with investors figuring negotiations would be concluded swiftly.
The optimism proved to be misplaced when, on March 6, 2024, Exxon Senior Vice President Neil Chapman announced to a stunned audience eating lunch at a Morgan Stanley conference in New York that Exxon had filed for arbitration. It was a surprise even to Wirth, who learned about the move from Exxon CEO Darren Woods in a phone call only the night before.
“We understand the intent of this language, of the whole contract, because we wrote it,” Chapman said, as the clinking of diners’ plates fell silent. “Most observers in this industry would understand our reputation for rigor, attention to detail in contract language. I mean, it’s a brand we have as a company.”
This time traders went into overdrive, with Hess shares extending losses below Chevron’s stock offer. That created an opportunity for merger-arbitrage funds such as Adage Capital Management, Millenium Management and Balyasny Asset Management, which would reap significant returns if the deal eventually closed. The funds mostly bought Hess and short-sold Chevron, wagering more than $5 billion total by March 2024.
Questions began to grow around Exxon’s intentions. Did it want to buy Hess itself? Or the company’s stake in Guyana’s oil fields? Or was this just a play to torpedo Chevron’s purchase?
Woods attempted to quell the speculation in March 2024 at the energy industry’s big annual conference in Houston, CERAWeek by S&P Global. “If we were interested in doing something with Hess, we wouldn’t have waited for Chevron” to sign its deal, he said.
Instead, Woods said, Exxon’s goals in arbitration were to “secure and confirm” the right-of-first-refusal, understand the value of that right, and “evaluate that value and do what’s in the interests of Exxon Mobil shareholders.”
The thinking appeared to be that the right of first refusal held some value, even if it was not exercised, which should benefit shareholders.
“The channels for dialog remain open,” Woods said in an interview at the time. “This is a business issue — this is not a personal one.”
Wirth and John Hess were becoming frustrated with Woods’s approach. Wirth, who previously had a good working relationship with his Exxon counterpart, considered arbitration an overly aggressive move that effectively ended constructive discussions between the companies. He was confident in his position and did not feel the need to compromise in a settlement.
Five to six months should be “sufficient time” for the panel convened by the International Chamber of Commerce to clarify the issue, Wirth told Bloomberg Television in April, 2024. But within days, Woods countered that arbitration would likely run into 2025, meaning Chevron would be left in strategic limbo for more than a year.
A further twist came in mid May, when Senator Chuck Schumer — then the chamber’s majority leader — urged the Federal Trade Commission to pump the brakes on the Hess transaction. Consumers were suffering from high energy costs, and more oil-industry consolidation would only increase inflation, he argued.
Soon after, influential proxy adviser Institutional Shareholder Services Inc. urged Hess shareholders to withhold their votes, citing concerns about the transaction’s valuation, process and uncertainty on arbitration timing. HBK Capital Management and D.E. Shaw & Co. followed ISS’s advice, publicly announcing their intentions to not back the deal.
Worried he would lose the vote, John Hess embarked on a whistle-stop tour of London, New York and Los Angeles to rally support. Participants in those meetings said he seemed stressed and entertained little debate, aggressively pressing the case that the takeover by Chevron was the best possible deal he could get.
At the same time, Exxon was also making its case to investors, though the stakes were much lower than for its opponents. A loss for Exxon would mean “business as usual,” Chapman later remarked, while a loss for Chevron and Hess would blow apart both companies’ long-term strategies.
While the Stabroek Block’s joint operating agreement was private, investors began to gather clues by looking at a template model contract published by the Association of International Energy Negotiators, upon which the Guyana one was based. It said the right-of-first-refusal clause did not apply when there was “ongoing control by an affiliate” entity.
This appeared to support Chevron and Hess’s case because the Guyana stake would still be held by Hess’s Guyana unit, even if that would now be controlled by Chevron. But Exxon believed the structure of the deal amounted to an attempt to circumvent the intention of the contract, which was to provide a right of first refusal to the other partners.
The contract, however, was written under English law, which typically places higher value on the actual words as written rather than their intent. Wirth and Hess, backed by a legal team in London, continued to express confidence in their interpretation.
John Hess won shareholder approval for the deal in late May 2024, albeit with the slimmest of margins — just 51%, largely due to the hedge funds’ abstentions.
But his relief was short-lived. In July, the Federal Trade Commission was said to be probing whether Hess and other US shale CEOs improperly communicated with OPEC officials about raising the price of oil, especially during the Covid-19 downturn. The FTC said it would approve the deal on the condition that Hess would not join its board. Chevron reluctantly agreed.
Hess vigorously denied the claims and they were later found to be baseless and overturned by the FTC. Critics called the case politically motivated, driven by then-President Joe Biden’s antipathy toward the oil industry.
As the case dragged on through the second half of 2024, Hess could barely disguise his contempt for Woods’s decision to go to arbitration. At one dinner in New York, he expressed his “disgust” at the company’s tactics over what he claimed was a straightforward transaction. He would never have signed a contract that effectively blocked him from selling his company, he said.
By the end of 2024, it had been more than a year since Hess and Wirth sat in front of the cameras celebrating their merger. Investor patience was wearing thin, with a large spread between Hess shares and Chevron’s takeover offer price still evident.
Still, Hess and Wirth continued to express confidence in securing victory, both publicly and privately. RBC Capital Markets analyst Biraj Borkhataria noted “the consistency to which Chevron management has communicated its stance around this deal.” It was crucial, given Chevron “had more at stake with this arbitration than Exxon did.”
Last week, Wirth and Hess were finally vindicated.
Shortly after 5:30 p.m. Thursday in New York, the FTC — now headed by an appointee of President Donald Trump — tossed out the ruling that blocked Hess from joining Chevron’s board. Thirteen hours later, word broke that the ICC panel had ruled in favor of Hess and Chevron. By the time trading on Wall Street opened at 9:30 a.m., Chevron had closed on the takeover.
The deal was finally done.