BREAKINGVIEWS-Chevron exits deal purgatory to no-fun future​

By Robert Cyran

NEW YORK, July 18 (Reuters Breakingviews) - It’s a good Friday for Chevron CVX.N. The $265 billion energy giant won its arbitration case against rival Exxon Mobil XOM.N, enabling its $53 billion acquisition of Hess HES.N to close. That win gives CEO Mike Wirth access to a rare source of cheap oil, and lots of it, via Hess’s Guyana operations. Yet the euphoria is already fading – the company’s stock was broadly unchanged in late morning trading on Friday. The victory merely returns Chevron to its no-fun future.

Chevron needed Hess’s 30% stake in Guyana’s giant Stabroek Block. The buyer was previously not replacing all the oil it pumps, and the field holds the equivalent of an estimated 11 billion barrels of oil. Moreover, the cost of production is around $20 a barrel according to consultant Rystad Energy, which means its owner makes a significant profit almost regardless of the state of the global market. Snag is, Exxon and China’s CNOOC, which own the remaining stakes in offshore consortium, challenged Chevron’s purchase. Their motivations were opaque, but the arbitration delayed the deal’s close by a year, weighting on the company's shareholder returns.

Chevron’s success means its production rises from around 3.4 million barrels a day to nearly 4 million. And Guyana should subsequently raise that a bit further, as production in the offshore field is expected to roughly double by 2027.

That’s a rare bit of brightness. Demand for oil is basically mature, with the International Energy Agency predicting it will grow slightly before reaching a plateau by the end of the decade. Output from the giant Permian basin in the U.S. also probably has peaked. Indeed Chevron is now focusing on harvesting cash there while cutting costs around the world. In February it pledged to slash a fifth of its workers, and Wirth told CNBC on Friday the deal’s completion would mean more trimming of expenses.

While investors might like growth, they demand oil giants return as much cash as possible, and then some. Chevron’s operations are set to produce about $40 billion of cash next year, according to analyst projections collected by LSEG, leaving the company with $23 billion after deducting capital expenditure. Yet analysts also expect Chevron to return nearly $28 billion to investors via repurchases and buybacks. That implies more shrinking and cost-cutting, which is less exciting than past days of expanded drilling. It’s the humdrum reality to which Chevron has returned.

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CONTEXT NEWS

Chevron closed its $53 billion acquisition of Hess on July 18 after winning an arbitration case before the International Chamber of Commerce. In February 2024, Exxon Mobil asserted it had the right to pre-empt Chevron’s acquisition of Hess’s share of a giant oil field off the coast of Guyana.

Hess owns a 30% share in a consortium that produces oil in Guyana’s Stabroek Block. Exxon owns 45%, and Chinese company CNOOC owns the rest.

"We disagree with the International Chamber of Commerce (ICC) panel's interpretation but respect the arbitration and dispute resolution process," Exxon said in a statement.

Exxon estimates gross recoverable reserves from Stabroek Block to be 11 billion oil equivalent barrels.