Hess Chevron deal approval

Hess Chevron merger approval by shareholders vote clears one hurdle, but the deal still requires regulatory approval. This means facing a lengthy arbitration battle with Exxon and CNOOC, Hess’ partners in Guyana.

Regulatory approval could come next month, said Frederic Boucher, risk arbitrage analyst at Susquehanna Financial Group, based on the time the Federal Trade Commission (FTC) took to approve Exxon’s acquisition of Pioneer Natural Resources earlier this month.

But the most crucial step to approve the deal, he said, is a resolution of the dispute filed by Exxon and CNOOC asserting they have a right of first refusal to any sale of Hess’s Guyana assets.

A majority of Hess’s 308 million shares outstanding voting in favor of the deal was required for approval. Results were preliminary and Hess did not immediately provide the vote tally.

Hess shareholders votes for merger

The vote is a win for CEO John Hess, who put his reputation and the future of a company founded by his father on the line.

The result puts to rest claims by some shareholders who wanted additional compensation for the delay in closing the sale. Exxon’s arbitration could push the deal’s closing into 2025.

“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.

Implications of Hess Chevron deal

The yes vote by shareholders has huge implications for both companies. Acquiring the profitable oilfields in Guyana from Hess would provide Chevron with a means to mitigate the geopolitical risks tied to the TengizChevroil project in Kazakhstan, which mainly transports its oil through Russia to a port on the Black Sea.

In addition, this acquisition could counterbalance the cost overruns experienced at Chevron’s Australian liquefied natural gas (LNG) projects, which have been affected by labor and operational issues.

Acquiring Hess’s Guyana holdings would fill out 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, said Allen Good, an analyst with Morningstar investment firm.

Hess and Exxon

The shareholder sign-off also strengthens the companies’ hand in any negotiations with Exxon. While Exxon has expressed no interest in bidding for Hess as a whole, it has not ruled out a potential bid for Hess’ assets in Guyana.

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 operates all production in Guyana with a 45% stake in the giant Stabroek Block. CNOOC owns another 25% of the joint-venture. Both claim a right of first refusal on any Hess sale of its 30% stake.

Incentive to shareholders

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

Proxy firm Institutional Shareholder Services had recommended shareholders vote to abstain and urged Hess to offer an incentive to shareholders because of the deal delay.

John Hess spent the last month lobbying large shareholders to win support for the merger. He had personally visited or called more than 30 firms, according to people familiar with the matter.

Stock update

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

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