The two largest oil and gas companies in the U.S.—Exxon Mobil and Chevron—are engaged in a battle of the behemoths for a tantalizing South American prize: a 30% interest in Guyana’s Stabroek Block.

The asset is currently owned by Hess Corp., which Chevron agreed to buy in October for a cool $53 billion. The theory goes that while Hess certainly has attractive assets in the Bakken, Stabroek was the selling point.

Exxon and Chevron are already producing in the region, but given the industry appetite for offshore international drilling, Guyana is largely viewed as the “next big thing.”

The excitement incited by boxing ringmaster Michael Buffer’s iconic “let’s get ready to rumble!” accelerates when you consider the epic scenarios that are set up here: the No. 1 and No. 2 oil companies in the U.S. prepare to duke it out; it’s the wildcatting Texas oilmen matched against the (perceived) fancy folks who are California dreamin’; the squaring off of two extremely successful engineers for the bragging rights of their rival alma maters, with Woods representing Texas A&M University and Wirth’s University of Colorado.    

Exxon took the initial punch, pushing forward on its front foot with both fists raised to defend its right of first refusal (ROFR) for the Hess interest. A quick glance of the regulatory filings that are quickly piling up suggests Chevron won’t back down.

Exxon is operator in the Stabroek consortium with a 45% interest; the rest includes Hess’ 30% and CNOOC’s 25%. Recoverable resources are estimated at more than 11 Bboe.

Production, which started in December 2019, is already slightly over 600,000 bbl/d from three floating production storage and offloading (FPSO) units. Exxon and Hess estimate production from six FPSOs will exceed 1.2 MMbbl/d by the end of 2027. Both say 10 FPSOs will be needed to develop the current resources.

But that may not be the half of it.

Top officials from the government of Guyana say that based on analysts’ reports and comments, they believe the resource in Stabroek is easily twice current estimates.

A question for the lawyers of both international oil companies relates to the ROFR details in the original joint operating agreement for Stabroek.

The Stabroek JOA ROFR provision gives the partners a right to buy the participating interest in the block held by a partner but only after, and conditioned on, the closing of such transaction.

To date, Chevron and Hess continue to argue the ROFR doesn’t apply to their planned merger, while Exxon and CNOOC believe the ROFR applies to the merger. All four companies continue in discussions related to the ROFR, but there is the possibility that either Hess or Chevron could elect for Hess’ Guyana affiliate to pursue arbitration to resolve the matter.

One needs to look at what’s really at stake for Chevron, Hess and Exxon as it relates to Guyana.

At stake for Chevron is losing a foothold in one of Latin America’s hottest exploration plays, which is Guyana and not Brazil—at least not any more since the latter country is now in the development stages of recent discoveries offshore. 

A Chevron position in Guyana would give the company an enviable position in northern South America, which could span from Colombia, Venezuela and Guyana to Suriname.

For Hess, it’s easy. Exxon’s surprise blow is ruining John B. Hess’ “exit strategy.” The Hess CEPP is eying potential payments and benefits in connection with the Chevron-Hess merger of around $56 million as part of his compensation package spelled out in Chevron’s S-4.

At stake for Exxon is losing an opportunity to grab an additional 30% interest in Stabroek and all the upside that entails. Maybe that uptick is only 15%, assuming CNOOC took the other half by exercising its ROFR.

Could Exxon make a counter offer to Hess? That can’t be ruled out, but it would likely require a premium above a premium to stick. Reuters has reported that Guyana’s Vice President Bharrat Jagdeo isn’t against the idea. Analysts say everyone is waiting to see what Exxon will do next, which is hard to guess.

Maybe this is Exxon’s in-the-ring poker face as it tries to gain even more leverage—sorry, revenue—in Guyana. Maybe that’s the $53 billion question.