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Chevron-Hess Merger Stalls on Arbitration Issues

The merger between Chevron and Hess Corp. may be delayed until next year because of the arbitration panel set up to rule on a dispute with Hess’s Guyana partner Exxon.

Three months after the arbitration case was filed, there is still one more arbitrator who needs to be appointed to the panel for it to be complete, Reuters reported earlier today citing unnamed sources familiar with the situation.

The sources said that each side in such a dispute appoints one arbitrator and those two then appoint the third one. It is the third one that has yet to be appointed.

Chevron announced last year it was going to acquire Hess Corp. in a deal valued at some $53 billion. Soon after, Exxon, which developed its Guyana offshore assets in partnership with Hess, challenged the deal.

The supermajor said that its partnership terms with Hess Corp. give it—and their third partner, Chinese CNOOC—the right of first refusal to the acquisition of Hess Corp.'s stake in the Stabroek Block. This is the patch of offshore acreage where the consortium has made a string of more than a dozen discoveries, tapping an estimated 11 billion barrels and counting.

Hess Corp. has a 30% stake in the Stabroek Block and Chevron has made no secret of the fact that this stake is the main reason it wants to acquire the company. Yet Exxon is also eyeing that stake, to add to its 45% in the project. If Exxon wins, the Hess acquisition would become pointless for Chevron.

Chevron’s counter-argument to Exxon’s first-refusal clause, supported by Hess, is that it does not apply when there’s a deal for the acquisition of the company bound by the first-refusal clause rather than its stake, to which the clause applies.

“The market is hoping that there is a speedy settlement to the arbitration process, but has never understood properly what Exxon is trying to achieve,” Mark Kelly, an analyst with financial firm MKP Advisors, told Reuters. “It is widely believed that Exxon has never communicated this to even Chevron or Hess.”

By Irina Slav for Oilprice.com

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