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Shareholders of Hess should abstain from voting on its $53bn takeover by Chevron, proxy adviser Institutional Shareholder Services has recommended in a potential blow to the US oil companies’ efforts to wrap up the deal quickly.
The takeover is the latest in a series of large mergers and acquisitions in the oil industry. Among the assets it would deliver to Chevron is Hess’s lucrative stake in an offshore oil block off the coast of Guyana.
A tense dispute over Guyana is casting a shadow over the deal. ExxonMobil, which has a 45 per cent stake in the Stabroek Block, asserts it has a right of first refusal over Hess’s 30 per cent stake.
ISS, one of two leading shareholder advisory firms, on Monday said Hess investors should support a pause to allow more time for details on an arbitration process Exxon initiated to emerge. Hess shareholders are due to vote on the deal on May 28.
ISS’s announcement pushed Chevron’s share price down 1.2 per cent on Monday afternoon.
ISS said during any adjournment Chevron may want to consider offering an incentive to Hess shareholders payment to compensate for a delay in closing the deal or in case the deal falls apart.
“Investors are presently unable to make an informed assessment of the likely timetable for the ROFR (right of first refusal) arbitration process,” ISS said. Glass Lewis, the other leading advisory service, has yet to issue its opinion of the deal.
The proxy adviser added that given the uncertainty surrounding the transaction and the potential interference of Exxon with the current proposed deal, “Hess shareholders bear the risk of a potentially broken deal without any compensation.”
Chevron on Monday said: “We look forward to Hess obtaining a successful shareholder vote and completing the transaction.”
Under the deal’s terms, Chevron has a right to walk away from the deal without paying a break-up free if Exxon wins the arbitration.
Darren Woods, Exxon chief executive, last week told a conference in Los Angeles that the arbitration process could drag on until 2025. Exxon is claiming a right of first refusal on the assets in Guyana under a joint operating agreement with Hess and the China National Offshore Oil Corporation, which owns 25 per cent of the Stabroek Block.
“This is an important arbitration, obviously, not only for ExxonMobil but for Chevron and Hess,” Woods said. “What we need to do is take our time to do what’s right to make sure that we do all the due diligence and we get to the answer — the right answer.”
ISS said the industrial rationale for the deal “may ultimately be defensible”, although it added that the roughly 10 per cent premium to be paid to Hess shareholders was modest.
The deal also faces political headwinds and an investigation by the Federal Trade Commission. On Sunday Chuck Schumer, US Senate majority leader, called on regulators to block the transaction over concerns it could raise petrol prices. “The FTC should side with consumers and pump the breaks [sic] on this deal,” he said on social media.
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