Chevron-Hess Merger Faces Exxon’s Right of Refusal Showdown
Executive Summary
Chevron’s proposed $53bn acquisition of Hess Corporation hinges on a complex legal dispute over the Right of First Refusal (ROFR) in the joint operating agreement (JOA) governing the Stabroek Block offshore Guyana. ExxonMobil and CNOOC, Hess’s joint venture partners in the Stabroek Block, argue that Chevron’s acquisition constitutes a change of control, triggering their ROFR rights. Chevron and Hess dispute this, claiming the deal is structured as a corporate merger with no direct asset transfer, and thus the ROFR clause is not applicable. The dispute is currently under international arbitration in London, with a ruling expected by Q3 2025.
The outcome has major implications not only for the Chevron-Hess transaction–admittedly the main event for today’s piece, but also for broader M&A activity in the energy sector involving joint venture assets.
Background: The Stabroek Block & Parties Involved
- Stabroek Block Ownership: ExxonMobil (45%), Hess (30%), CNOOC (25%)
- Asset Value: Estimated 11+ billion barrels of oil equivalent
- Deal Structure: Chevron to acquire 100% of Hess Corporation in an all-stock transaction (for every share of HES owned, shareholder receives 1.025 shares of CVX in return, per deal terms)
The Chevron acquisition would indirectly grant it Hess’s 30% stake in the Stabroek Block, a key strategic prize in the deal.
Heart of the Dispute: Interpreting the ROFR Clause + ExxonMobil and CNOOC’s Argument:
- The merger constitutes a “change of control” under the joint operating agreement.
- This triggers the ROFR, giving them the right to match Chevron’s offer and acquire Hess’s 30% stake in the Stabroek Block.
Chevron and Hess’s Argument:
- No direct transfer of Hess’s interest occurs–Hess remains a subsidiary post-close.
- The JOA ROFR applies only to direct asset sales, not indirect parent-level changes–CVX is buying HES, the entire company, which just so happens to include its stake in Stabroek–thus, CVX isn’t directly acquiring this 30% stake, curtailing the ROFR.
Legal Framework: What the Law Says About ROFR in M&A ROFR clauses in JOAs are typically designed to protect existing joint venture partners from unexpected new entrants. However, ambiguity often arises over whether these provisions apply to indirect transfers (e.g., corporate mergers).
- Under UK and international arbitration precedent, ROFRs must be explicitly drafted to include indirect transfers to be enforceable in those scenarios.
- Unless the JOA explicitly references mergers or changes of investor control (i.e., Hess being wholly acquired by Chevron), legal precedent suggests Chevron’s position will likely prevail–it is still important to briefly note that many don’t know actually know the specific terms of the contract, but given what most current merger arbitrageurs know and can find at the moment, the data skews favorably towards Chevron.
Arbitration Status and Timeline
- Forum: International Chamber of Commerce, London
- Legal Framework: UK contract law
- Timeline: Ruling expected by Q3 2025
If the arbitration panel sides with Exxon and CNOOC, Chevron may need to either walk away from the deal or significantly restructure it. Admittedly, under UK contract law, the outcome of the arbitration concerning Chevron’s acquisition of Hess Corporation and the associated Right of First Refusal (ROFR) clause in the Stabroek Block Joint Operating Agreement (JOA) will hinge on the specific language of the JOA.
Key Considerations:
- Explicit Language: UK courts and arbitration panels interpret contracts based on their explicit terms. If the JOA’s ROFR clause explicitly includes indirect transfers, such as mergers or changes in control at the parent company level, then ExxonMobil and CNOOC’s claim may be upheld.
- Absence of Specificity: If the JOA lacks explicit provisions regarding indirect transfers, UK law typically does not extend ROFR rights to such scenarios. In such cases, Chevron’s acquisition of Hess may not trigger the ROFR clause.
- Commercial Purpose: Courts may also consider the commercial purpose of the ROFR clause. If it is determined that the clause was intended to prevent changes in the operational control of the joint venture, and the merger effectively alters that control, the ROFR could be deemed applicable.
Current Arbitration Conclusion:
Without access to the specific language of the JOA, it is challenging to predict the arbitration’s outcome definitively. However, under UK contract law, unless the ROFR clause explicitly covers indirect transfers or mergers, it is unlikely to be triggered by Chevron’s acquisition of Hess.
In considering cases precedent, while specific UK cases directly addressing ROFR clauses in the context of indirect transfers are limited, the general principles of contract interpretation apply. For instance, in the case of H-B-S Partnership, a U.S. court held that a sale of a party’s “corporate great-great grandparent” was an “indirect transfer” triggering a ROFR, but this was based on the contract’s specific inclusion of indirect transfers and changes in control.
It is also worth briefly noting that according to Chevron’s S-4 filing with the U.S. Securities and Exchange Commission (SEC), the JOA includes a Right of First Refusal (ROFR) provision. This clause potentially allows existing partners, such as ExxonMobil and CNOOC, to acquire a participating interest in the Stabroek Block if another party intends to transfer its stake. The applicability of this ROFR in the context of Chevron’s acquisition of Hess is currently under arbitration–however, the baseline fact(s) still remain→Chevron is not acquiring just Hess’s stake in the Stabroek Block—it’s acquiring the entire company. Under contract law (particularly UK law, which governs the arbitration), ROFR clauses typically apply to direct asset sales, not whole-company mergers—unless explicitly stated otherwise. So far, public disclosures suggest the JOA is silent or ambiguous on indirect transfers (like mergers), which typically favors Chevron.
The arbitration panel’s ultimate decision will certainly set a precedent for the interpretation of ROFR clauses in JOAs, particularly concerning indirect transfers through corporate mergers.
Brief Note on Industry Impact: Why This Matters
- Precedent Setting: A pro-Exxon ruling could reshape how ROFRs are interpreted globally in JV asset M&A.
- Deal Uncertainty: Until arbitration resolves, there is material (perceived) risk to deal consummation.
- Strategic Stakes: Chevron is unlikely to proceed with the acquisition if it cannot secure the Stabroek stake.
Conclusion:
Where Things Stand Now: As of mid-2025, the core uncertainty surrounding the Chevron-Hess acquisition lies in the enforceability and scope of the ROFR clause in the Stabroek Block’s JOA.
- If the arbitration panel determines the ROFR does not cover corporate mergers, Chevron will likely prevail and acquire Hess with its Guyana stake intact.
- If it rules in favor of Exxon and CNOOC, they may gain the opportunity to acquire the stake themselves, effectively collapsing the deal.
My Ultimate View: Given typical and preceding legal interpretation of ROFR clauses and Chevron’s deal structure preserving Hess as a standalone entity, the most objective base case is that Chevron wins the arbitration, unless the JOA specifically contains unusually explicit change-of-control language. Additionally, Chevron is unlikely to walk away unless absolutely forced. The Guyana asset is the crown jewel, and Chevron structured this deal knowing there might be ROFR friction. That they moved forward signals strong internal legal confidence.
Estimated Probability of Deal Closing as Proposed (as of May 2025): 75%
Next Catalyst: Arbitration panel ruling expected Q3 2025
DISCLAIMER: This analysis of the aforementioned stock securities and situation is in no way to be construed, understood, or seen as formal, professional, or any other form of investment advice. We are simply expressing our personal opinions.
© 2025 MacroHint.com. All rights reserved.