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ExxonMobil's (XOM) Right of Refusal Halts Chevron-Hess Deal

Exxon Mobil Corporation’s XOM ongoing arbitration over its right of first refusal concerning Hess Corporation’s HES Guyana operations has put a significant hold on Chevron’s CVX $53-billion acquisition of Hess.

This delay has stalled a decision on whether ExxonMobil has a right of first refusal over Hess’ lucrative Guyana operations. The arbitration panel, tasked with deciding this critical issue, remains incomplete three months after the case was filed, hindering any immediate resolution.

The sale has become a contentious issue, primarily because it involves a 30% stake in a lucrative Guyana oil consortium, which has discovered at least 11 billion barrels of oil and expects to produce 1.3 million barrels per day by 2027. ExxonMobil, holding a 45% majority stake in the consortium, claims that Chevron's acquisition of Hess circumvents its preemption right as specified in the joint operating agreement (JOA).

Each party in the arbitration appoints one arbitrator, and these two nominate the third. The delay in appointing the final arbitrator has raised concerns about the timeline of the decision, with Hess projecting a resolution by the end of 2024 and ExxonMobil anticipating the dispute to extend into 2025. The International Chamber of Commerce, overseeing the arbitration, has not provided a timeline for appointing the third arbitrator or the decision process.

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Despite Hess shareholders approving the sale by a slim 51% majority, the U.S. Federal Trade Commission has yet to address antitrust issues, further complicating the situation. ExxonMobil argues that the intent behind the JOA supports its right of first refusal. This precedent is crucial, as evidenced by a 2017 case in Canada, wherein ExxonMobil successfully defended a similar right against Northrock Resources.

Chevron maintains that ExxonMobil's right of first refusal does not apply to the entire sale of Hess. Different valuations of the Guyana assets could influence the arbitration's outcome, particularly if ExxonMobil prices Hess’s stake higher than Chevron's $53-billion offer.

As the arbitration panel remains incomplete, market stakeholders are left in anticipation, hoping for a swift resolution to this high-stakes dispute.

Zacks Ranks & Stock to Consider

ExxonMobil currently carries a Zacks Rank #3 (Hold).

Investors interested in the energy sector may look at one better-ranked stock, namely Archrock Inc. AROC. The company currently sports a Zacks Rank #1 (Strong Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

Archrock is an energy infrastructure company based in the United States with a focus on midstream natural gas compression. It provides natural gas contract compression services and generates stable fee-based revenues.

The Zacks Consensus Estimate for AROC’s 2024 and 2025 EPS is pegged at $1.07 and $1.23, respectively. The company has a Zacks Style Score of A for Growth. It has witnessed upward earnings estimate revisions for 2024 and 2025 in the past 60 days.

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Chevron Corporation (CVX) : Free Stock Analysis Report

Exxon Mobil Corporation (XOM) : Free Stock Analysis Report

Hess Corporation (HES) : Free Stock Analysis Report

Archrock, Inc. (AROC) : Free Stock Analysis Report

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