The Black Gold Battle: Oil Giants Clash Over an 11 Billion Barrel Project

This week, a private arbitration tribunal in London began hearing arguments from major US oil supermajors ExxonMobil and Chevron, pertaining to their rights over one of the world’s most profitable oil projects.

The Stabroek block in Guyana is estimated to hold 11 billion barrels of oil, discovered by the ExxonMobil-led joint venture including Hess Corp and China’s CNOOC. Large-scale, low-cost production began 5 years ago and currently pumps approximately 660,000 barrels of crude oil per day to market. Exxon serves as the operator of this block with a 45% stake, while Hess holds 30% and CNOOC the remaining 25%.

However, in 2023, Chevron proposed a $53 billion deal to acquire Hess Corp, which would include taking over Hess’ assets in Bakken, North Dakota, and its 30% stake in the Stabroek block offshore Guyana. This particular asset has been the highest performer with the potential to yield billions for the project partners.

According to Exxon, Guyana’s production capacity is expected to surpass 1.7 million barrels per day, with total output rising to 1.3 million barrels per day by 2030. Guyana is currently the world’s third-largest oil producer per capita, as per Exxon’s statement.

The revenue of the joint venture participants is surging as output increases, even with the current oil prices. The estimated break-even price for extraction at the Stabroek block is approximately $30 per barrel.

Chevron’s proposed acquisition of Hess’ stake in the Guyana project is being contested by Exxon and CNOOC. These two corporations declared that they have the right to pre-empt a third party’s purchase of Hess’ shares per the terms of the joint operating agreement (JOA). Conversely, Hess and Chevron asserted that the JOA does not apply when Hess sells its entire company.

As a result, the dispute was referred to arbitration, and the close relationship between Exxon and Chevron’s top executives has dissolved, as per WSJ sources.

Exxon and CNOOC’s request for arbitration has delayed Chevron’s acquisition of Hess by over 18 months. Insiders suggest that the outcome will be announced later this year. The arbitration tribunal, consisting of three judges, commenced hearings on May 27 without the presence of any parties. The council is expected to deliver a ruling within 90 days from the conclusion of the hearings. Thus, the fate of Chevron’s $53 billion acquisition of Hess may be determined in August or September this year.

Both Chevron and Exxon express confidence in their victory in this dispute. The outcome of the arbitration may hinge on the tribunal’s interpretation of certain words in the joint operating agreement pertaining to pre-emption rights, as per FT.

This year, Chevron expanded production in Kazakhstan and commenced production at the Ballymore oil project in the Gulf of Mexico. However, the company is making a significant bet on Guyana for substantial oil volumes and high profits.

According to the Guyanese government’s data, ExxonMobil, Hess, and CNOOC recorded a combined net profit of $6.33 billion for their offshore extraction operations in 2023. Hess accounted for $1.88 billion of this sum—before initiating new offshore rigs post-2023. The combined net profit margin for the joint venture participants in the Stabroek block was 56% in 2023.

According to Wood Mackenzie’s estimates, this joint venture could generate $182 billion over the next 15 years from Guyana’s oil fields. WM analyst Luiz Hayum told FT that “Guyana is one of the most prized oil and gas projects on the planet.” He added, “It was developed in record time, delivering low-emission oil with a break-even price of under $30 per barrel—super-profitable.”