Chevron-Hess Deal Creates American “Dream Team” Offshore Guyana, Surprises Analysts

Chevron Corp.’s $53 billion all-stock deal for Hess Corp. will see the California oil giant team up with its Texas counterpart Exxon Mobil Corp. to seemingly create an American “dream team” in Guyana’s prolific offshore Stabroek Block.

But, the merger of assets offshore Guyana was somewhat surprising to analysts with Truist Securities Inc.

“We were surprised by the deal given Exxon operates Hess’ largest asset (Guyana, approximately 75% of total company value), which will continue to be one of Chevron’s largest assets going forward,” Truist analyst Neal Dingmann, Bertrand Donnes and Jacob Nivasch wrote Oct. 23 in a research report. “Further, we believed Chevron would buy another company with more contiguous assets to their existing positions. However, the larger scale that will include synergies and efficiencies will provide interesting potential upside.”

Chevron already has a strong presence in the Latin America and Caribbean region. The Hess deal adds to that, specifically in northern South America where the company has producing assets in Venezuela and others under evaluation in Suriname.

In Venezuela, located immediately west of Guyana, Chevron also has a strong long-term presence. Chevron is the lone U.S. producer with the potential to significantly boost production under a recently authorized license emitted by the U.S. Office of Foreign Assets Control. Exxon, which also had operations in Venezuela, pulled out in the early 2000s over disagreements with the government of late president Hugo Chavez Frias.

In Suriname, located immediately east of Guyana, Chevron has interest in Block 42, Block 5 and Block 7. Efforts offshore Suriname spearheaded by U.S.’ APA Corp. and France’s TotalEnergies have created potential for Suriname to team up with Guyana to jointly develop and commercialize their resources.

While Chevron’s Hess grab will also see the U.S. major add attractive assets in the U.S. Bakken, Gulf of Mexico and Southeast Asia, Guyana is without a doubt the crown-jewel of Hess’ portfolio.

“The [6.6 million acre] Stabroek block in Guyana is an extraordinary asset with industry leading cash margins and low carbon intensity that is expected to deliver production growth into the next decade,” Chevron said in a press release on Oct. 23.

Hess’ Guyana assets provide “high cash margins per barrel, strong production growth outlook and potential exploration upside,” Chevron added in the release.

“[Chevron] has relatively weak exposure to the deepwater Atlantic Margin compared to majority of its peers—taking Hess' 30% in the Exxon Mobil-operated world-class Stabroek project in Guyana will address this gap in the portfolio,” Welligence Energy Analytics said Oct. 23 in a social media post. “Year on year, the Guyana Basin has been absorbing a greater portion of Hess' spend. We anticipate further consolidation, particularly in the North American independents’ space.”

“We do not anticipate any impact to our operations in Guyana,” Exxon media relations advisor Michelle Gray told Hart Energy Oct. 23 in an emailed reply to questions. “Hess has been a valued partner in Guyana since 2014 and we look forward to continuing our successful operations in the Stabroek block with Chevron, pending the deal closing.”

Guyana Offshore Upside

Hess participates in the Stabroek Block through its affiliate Hess Guyana Exploration Ltd., which has a 30% interest in a consortium operated by Exxon and its affiliate Esso Exploration and Production Guyana Ltd. (45% interest). The remaining interest in the block is held by CNOOC’s affiliate CNOOC Petroleum Guyana Ltd. (25%).

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The Exxon-led consortium has found recoverable resources of over 11 Bboe in the offshore Stabroek Block. Initial production started in late 2019 and has been ramping up yearly as new floating production storage and offloading (FPSO) vessels come online.

The first two offshore developments, the Liza Phase 1 (Destiny FPSO) and Liza Phase 2 (Unity FPSO), have an average gross production of around 400,000 bbl/d, Hess’ COO and president of E&P Gregory P. Hill said during the company’s second quarter 2023 conference call in July.

Payara, the third development in Stabroek, will add a gross capacity of 220,000 bbl/d by early fourth-quarter 2023, Hill said then.

Thereafter, Yellowtail, the consortium’s fourth development in Stabroek, will add gross production capacity of 250,000 bbl/d in 2025. Uaru, the consortium’s fifth development, will add a similar gross production capacity of 250,000 bbl/d in 2026. The plan for the consortium’s sixth Stabroek development, Whiptail, is expected to be submitted for government and regulatory approval by year-end 2023.

All in all, six FPSOs in Stabroek with a gross production capacity of over 1.2 MMbbl/d are expected to be online by the end of 2027. There is potential for up to 10 FPSOs to develop the estimated gross discovered recoverable resources of over 11 Bboe, according to Hess and Exxon.

Guyana Assets to Overtake Bakken

Prior to the Oct. 23 transaction, Hess’ offshore Guyana assets were on track to dethrone the company’s Bakken assets in around two years when they would potentially become the company’s largest-producing asset, according to a recent Hart Energy analysis.

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Hess’ Guyana Assets Set to Dethrone Bakken Around 2025

In the Bakken in 2024, Hess’ assets could represent 42% of the company’s production compared to around 44% earlier this year. By 2025, this Bakken figure could drop to around 36%, as Guyana production ramps up.

In Guyana in 2024, Hess’ offshore assets could represent around 37% of the company’s production compared to around 30% earlier this year. By 2025, this Guyana figure could rise to around 46%.