Hess shareholders approve $53 billion merger with Chevron

Hess Corporation’s shareholders have approved the proposed $53 billion merger with Chevron, paving the way for the No. 2 U.S. oil company to acquire a prized asset and gain a foothold in rival Exxon Mobil’s massive Guyana discoveries. This approval marks a significant milestone, but the deal still faces additional hurdles, including regulatory approval and a lengthy arbitration battle with Exxon and CNOOC, Hess’ partners in Guyana.

Regulatory approval from authorities, such as the Federal Trade Commission (FTC), could potentially be obtained as early as next month, according to Frederic Boucher, a risk arbitrage analyst at Susquehanna Financial Group. This timeline is based on the FTC’s recent approval of Exxon’s acquisition of Pioneer Natural Resources earlier this month.

However, the most crucial step in approving the deal lies in resolving the dispute filed by Exxon and CNOOC, who assert their right of first refusal to any sale of Hess’s Guyana assets. This arbitration process could potentially delay the deal’s closing until 2025.

For the merger to be approved, a majority of Hess’s 308 million outstanding shares had to vote in favor. While the company did not immediately provide the vote tally, the preliminary results indicate that the required majority was achieved.

This vote represents a win for Hess CEO John Hess, who staked his reputation and the future of the company founded by his father on the proposed merger. The result also addresses concerns raised by some shareholders who sought additional compensation for potential delays in closing the sale due to Exxon’s arbitration.

“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,” CEO Hess said.

Hess and Chevron shares gained on the results. Hess rose a fraction to $152.05 and Chevron climbed less than 1% to $159.04.

“Assuming Chevron wins the arbitration from Exxon or finds a settlement, the transaction is now going to happen,” said Mark Kelly, an analyst with financial firm MKP Advisors.

The affirmative vote by Hess shareholders carries significant implications for both companies involved in the proposed merger. By acquiring the profitable oilfields in Guyana from Hess, Chevron would gain a means to mitigate the geopolitical risks associated with the TengizChevroil project in Kazakhstan, where the majority of oil is currently transported through Russia to a port on the Black Sea.

Additionally, this acquisition could counterbalance the cost overruns that Chevron has experienced at its Australian liquefied natural gas (LNG) projects, which have been impacted by labour and operational challenges.

According to Allen Good, an analyst at Morningstar investment firm, acquiring Hess’s Guyana holdings would bolster Chevron’s oil and gas reserves and provide a new avenue for production growth, beyond their existing operations in the U.S. and Central Asia.

Hess shareholders will own nearly 15% of the much larger Chevron corporation and gain access to its dividend, which is four times greater than Hess’.

The shareholder approval also strengthens the companies’ position in any potential negotiations with Exxon. While Exxon has not expressed interest in bidding for Hess as a whole, it has not ruled out the possibility of making an offer for Hess’ assets in Guyana.

“It’s good Chevron cleared this hurdle given the rumblings over the uncertainty of the Guyana arbitration,” Good said. “However, I don’t think it will influence the outcome of Exxon’s claim”.

Chevron anticipates moving the FTC regulatory process towards its conclusion in the coming weeks, a spokesperson said.

“We are confident our position on the preemption right will be affirmed in arbitration,” the company said.

Exxon Mobil operates all production activities in Guyana, holding a 45% stake in the giant Stabroek Block. CNOOC, another partner in the joint venture, owns a 25% stake. Both companies claim to have a right of first refusal on any potential sale of Hess’ 30% stake in the Stabroek Block.

Ahead of the shareholder vote, the proxy firm Institutional Shareholder Services had recommended that shareholders abstain from voting and urged Hess to offer an incentive to shareholders due to the anticipated delay in completing the merger.