How One Clause Sparked Exxon-Chevron Feud That Turned Personal

Article content

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.

Article content

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. 

Article content

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. 

Article content

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. 

Article content

Article content

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. 

Article content

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.

Article content

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.

Article content

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. 

Article content

Article content

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. 

Article content

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. 

Article content

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. 

Article content

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.