Deal Spotlight Episode #7: Exxon vs. Chevron for Hess and The Battle For Guyana

Guyana has emerged as one of the most prized oil assets over the last 10 years and the race to develop this asset is seen as critical to stable oil production growth over the next 10 years. Chevron has attempted to jump into this growth by purchasing Hess for a $53B price tag, seemingly giving them access to Hess’s prized 30% stake in the Starbroek Block. This deal gave Chevron the future production growth it was seeking after missing out on some of the larger Permian shale deals we have seen over the last 12 months. But ExxonMobil had other plans, being the operator of this field, has experienced what it sees as a “First Of Right of Refusal” to Guyana and has petitioned to international courts to block this deal until ExxonMobil decides whether or not to “bid” on this 30% stake.

Episode 7 of the Deal Spotlight felt like the perfect place to discuss the details surrounding this potential merger, and I was lucky to be able to get Bennett Williams to join me for this discussion. Bennett has spent his entire career working in the M&A space and having worked within Chevron doing corporate offshore development, brings a unique insight into this merger mess. He spent the first half of the show helping educate me on the ins and outs of offshore development, dealing with governments, and understanding how these JOAs are structured. After laying the groundwork, we dive into the details of this proposed deal, look at some of the potential language that may have been used to craft the JOA and who he thinks ultimately will prevail in this suit.

This was a great educational piece for me having spent my career in the Lower48, so big thanks to Bennett for taking the time to come and deal with me!

Until the next deal!

Links:

Bennett Williams: https://www.linkedin.com/in/bennett-g-williams/

GitHub Repo: https://github.com/Sandstone-Group/dealspotlight/tree/main/exxonchevronhess-ep7

ENB Articles:

Highlights of the Podcast

00:00 – Intro
01:51 – Bennett Williams Background
6:03 – Differences Between Onshore and Offshore M&A
12:04 – Government and Offshore Deals
19:35 – Production Sharing Contracts (PSC)
30:16 – Importance of Guyana
36:04 – Chevron-Hess Deal Overview
43:11 – Exxon’s Right of First Refusal
52:25 – Arbitration and JOA Language
01:08:20 – Exxon’s Game Theory
01:09:17 – Closing Thoughts

Highlights of the Podcast

Michael Tanner [00:00:00] What’s going on, everybody? Welcome into episode seven of the Deal Spotlight. Well, we are covering Chevron, Hess, and Exxon and the battle for going on it. Absolutely. Great episode. I am thrilled to be joined by Bennett Williams, managing partner over at a car Group LLC. Bennett is somebody you have an opportunity to meet over the past couple months in absolute, you know, wealth of information. He comes on the show and really is an expert in M&A and, you know, commercial negotiations when it’s specifically having worked at Chevron for years knowing the ins and outs of this market. He was the perfect guest to bring on, to break down really this entire crazy situation where you’ve got Chevron buying Hess and really only buying Hess for the value of the Guyana assets, Exxon coming in over the top and saying, well, wait a second, we actually have a right to purchase. Guyana has Guyana interest first. Both companies aren’t interested in Hess at large. They’re only interested in this 30% stake. You know, we talk all about first kind of the offshore M&A space, you know, talk about, you know, mainly why the growth of production is dominated by the offshore space. We then, get a little bit also on Bennett’s background. He talks us through some of the key KPIs, as you look to do in M&A deal specifically that includes some offshore stuff. We then dive in, specifically the deal. He gives us some great insights into, you know, how you how he would value this deal. Some of the things to look at. We break down Harvey applies his great article where he kind of covers the change of control metrics there. So all in all, a great episode guys. Really appreciate Bennett for coming on the show. You know, about to turn it over here. But as always guys, check us out. Energy Beat Com. The description below is going to have all the links to be able to stay up to speed with the show. But until then guys, I’m going to turn it over to Bennett to myself. Here’s the deal.

Michael Tanner [00:02:02] Thanks for joining us on the Deal Spotlight. How are you doing today?

Bennett Williams [00:02:05] Very well. Thank you.

Michael Tanner [00:02:06] This is this is going to be really fun. You know, this is a we focus you know, in the first I would say 5 to 7 episodes of this podcast specifically on kind of small onshore and some mergers and acquisitions. We did oxy Crown Rock last week. We just got done covering some oilfield service mergers where I got to learn, really learn, a lot about an industry that I or a segment of the upstream business that I haven’t necessarily touched as much. And this has been a deal that’s been on my mind for a for a couple months now, specifically when Exxon came out and decided to challenge this merger between, Chevron and Hacen. Really excited to get you on here and discuss all things this deal. You know, as we were talking, you know, a month or two ago, you, you your experience lines up exactly with what, I think what this deal and a lot of the, the issues that we’ll talk about in this deal. So again, really appreciate you coming on. I want to start really by setting the table before we dive into the deal specifically, first a little bit on your background, kind of how you got to to to where you are and where you kind of fit in, and all this stuff.

Bennett Williams [00:03:13] Sure. So, foundationally, I’m an energy economist. I would say undergrad, University of Alaska, Anchorage economics major, double minor math and political science, then directly to grad school, Colorado School of Mines, with a real focus, in the energy game and resource economics, I’d say master of science in mineral economics with a minor in petroleum engineering.

Michael Tanner [00:03:37] Far and few between people know about the M.S., in the mineral economics program at mines. Proud graduate of that program as well. So right off the bat, your scoring points with me.

Bennett Williams [00:03:47] Yes, but that’s my objective opinion, right? Yeah. So it’s, yeah, phenomenal program, very quantitatively focused. And then I wanted the technical foundation to understand, inputs I was giving. Right. Because the economic function and industry, you kind of the funnel that everything feeds to. And just like you want to you want to be able to QC that stuff and not just accept it on faith. And so. That led all roads lead to Houston. Then if you’re in oil and gas, at some point it seems like. And, out of grad schools went with a startup in Houston called ease, very high end, probabilistic, asset characterization, using Monte Carlo simulation to then feed 10,000 realizations of the world into a portfolio optimization tool. Super black box. Never, headed for the market. Penetration envisioned. But, the startup was acquired by a Halliburton sub and then, picked up a project that had gone dormant during the, the, the takeover during, during the sale. And so, then delivered that for, Anadarko, which became my entree to move effectively from the service side to the producer side, went and started working in Anadarko’s Andi shop. And so then in Anadarko, about four years there and then Chevron working in the Chevron upstream Africa, Latin America headquarters, North America headquarters, and then seven years at Murphy as business development manager, which in 95 plus percent of the world business development sales. But in the upstream that’s R&D or M&A. And so then that’s what I’ve been doing. Covid came to town and got my head chopped off after that -$37 print on the front month, Nomex contract closed. And so then, these days, I’ve been, recently doing some consulting for a very active, startup acquire in the US Gulf of Mexico. I think they closed, like seven deals in 12, 14 months or something. And they’re banging on 14,000 barrels a day of production currently from in, like, less than 18 months. So they’re they’re like, yeah, on fire. You can see here we are today.

Michael Tanner [00:06:03] Yeah. No, guys, you can see exactly why I wanted to bring Bennett on here. Because he is, he’s got a lot of experience specifically dealing with some of the offshore stuff. And I want to, you know, specifically your time at Chevron and all that. I want to get a quick kind of again before we dive in a 30,000 foot view of of some of the stuff. So in, in you’ve seen both sides of both kind of onshore and offshore M&A. You’ve worked kind of around the globe. You have experience working with governments, other national oil companies. Being in a large big oil company is Chevron. Talk to me a little bit about the difference and maybe the similarities between doing some, you know, an onshore primary onshore M&A deal versus offshore. What are some of the considerations and, and, and maybe what are some things that are big that maybe, you know, the general public may not think about as these deals are, are being, come together.

Bennett Williams [00:06:57] Well, first, let’s talk about the frame, right. This, which is getting into a little bit of the chevron and of the game and decision analysis. And what is it that we mean when we say onshore? Right. Because implicit in that is, unconventional onshore resources. Right. And once upon a time, onshore was like doing the same game, effectively from a risk perspective, as opposed to, what we used to call source rock, but now it’s unconventional resources. So, it’s that the, the question of the presence of oil is, does it basically doesn’t exist for the unconventional resources. There are hydrocarbons there. It the the issue becomes how much of them can be mobilized depending on what, technology we apply to that. And by technology, I mean probably really which generation and technique of, stimulation. Right. Because effective what we’re going in is banging on the rock hard enough to create reservoir conditions in the zone around the rock. How effectively can you do that? And then you can start moving some of those long chain hydrocarbons in the unconventional resources, but so different about the offshore. Before you know the resources there is, you’re going to go out and spend 100 million, $200 million to maybe get some very expensive geologic information about, rock strata and discovered that there are no hydrocarbons present. So so that gets at one of the in terms of the levels of participation, risk sharing and joint venture activity, which is becomes a hallmark, perhaps of the offshore activity, depending on where in the life cycle of that offshore asset you are, because the characteristic of the deal or the approach of the deal can be very dependent, and who the players are very dependent on where in that asset life cycle you are, are you at the risk capital stage? All right. Exploration then when I was at Chevron, Big George, George Kirkland was the the the king of offshore upstream International at Chevron. And he’d say out of one on 100% of anything and because two there’s you’ve got, a lot of concentration risk in the offshore that you don’t have in the onshore. So you’ve got, you know, just looking at the Gulf of Mexico. You might have some great big field that’s making, you know, 50,000 barrels a day. And it depends on for wells to produce that. And if any one of them water’s out, you’re screwed. So so there’s the technical risks are greater. The, the resource concentration I think is greater as well. The potential return. So it’s a risk reward relationship there. But some of the those are some of the characteristics is becoming into the asset. If you’re if it’s been discovered but you’re in pre-production investment is you know that. So but it’s a very much a growth asset. It’s about to come on. Still a lot of risk on how it’s going to perform. Before you turn it on and get to see the steady state on the reservoir. And then are you where are you at? Okay. It’s on production. You got production history a lot less risky. You you have a much better idea of what the reservoir is. You’ve got dynamic performance data, then some sense of, okay, now we know how much reservoir rock we got. How many? You know what our take points are doing? And do we know how many additional wells it might take to to get to economically optimized depletion of that resource? So, or are you like at late life cycle. And there’s some folks that are that’s their niche. Right. And they’ll come in and mature assets and then figure out how to do it faster, better, cheaper as well as smaller, and hungrier, let’s say companies, will come in and then find bypass potential in those assets. It really that’s the story of what makes sense, what pays out if you are Chevron, the things that make sense to direct your human capital and and financial capital towards are big things and something that really is, you know, your crumbs become someone else’s bank as assets kind of cascade down down an ownership chain. So that yeah, that’s some big picture differences in some of the, you know, the versus the unconventional stuff. Where are you going? That’s going to be okay. We’ve got, x amount of acreage looking at, lease geometry and we can and what our spacing we think we can get, you know, the utilization factor or, you know, some, some fraction of that acreage, then we can get two mile long laterals on and maybe we got to go bang out a couple of mile long wells. And, but we got this many locations to work with and, and we then we’ve got, we may have some tight curves that we can apply to stuff and have some pretty good sense. If you’ve got the production history of what that rock’s going to do. But, it’s but, you know, the, the, the issues and the questions and the technical risks are, different and, and in many respects are often significantly lower than, than you find in the offshore.

Michael Tanner [00:12:04] Yeah. There’s there’s two things I want to kind of follow up on that. I think the first, the first question before we kind of get into Guyana as a whole and circle back to one of the things you said is, you know, your experience specifically working in Africa and Latin America, you know, when you’re on an onshore deal, specifically if you’re trying to buy some acreage in the Permian, I mean, you’re dealing with, you know, the tax structure you’re only dealing with the majority of the deal is what’s the as you said, what what’s the type curve, how much resources there and how economically efficient can we produce it. When you’re when you’re looking offshore, you’re dealing with multiple different stakeholders versus just the company that you’re either acquiring or the acreage that you’re going to purchase. What is it like working and how did government fit into that? A deal analysis, you know, specifically for Chevron has you now got to deal with the Guyanese government and all this. What does that look like? Have you ever do you find that difficult? Is it hard. What’s the push pull there.

Bennett Williams [00:13:00] It’s it’s well it’s different right. And so there may be for example, Guyana prior to this was a complete frontier country. Right. They had great terms because they didn’t have any oil, I mean, any production. It turns out Mother Nature had been bounteous, in her and her gifts to in the Guyanese offshore. But there was no, there was no production history. So what you will often find or there’s a real, inverse correlation between the prospective and the history of, of production success in a province and how much government take and the terms of that are on offer for that acreage. And so, you know, great examples Nigeria where super prospective offshore and, and if you go through, through through the years, you’ll find successively greater levels of take as that industry is matured and and they, you know, they’ve got a handle on what they want and then also get a taste for the economic rents that can be generated by a successful hydrocarbon extraction. So in Guyana, it started out completely frontier, this curious set of circumstances where. Exxon had pretty much the entire offshore in a single block for a really long time. And that’s starting to get down to the weeds on the specifics of that. But pulling back into the larger question of that, even in, in a frontier, area where there’s been extremely limited hydrocarbon extraction, I participated in the three block capture at Chevron to get to offshore Liberia. This was right after, Ghana popped in, though, that, stretch along offshore West Africa was really hot. So Chevron wanted to get into, into Liberia and, and so, went through that capture, activity that included doing some analysis around terms, because you got the Liberian government and the Liberian NOC, which I might characterize as an aspirational national oil company at that point, because they didn’t have the oil. But and they’re looking at their neighbor, Nigeria, saying, yeah, I’ll have what he’s having. And, I’m like, well, wait a minute, guys, here’s here’s the difference. And show them. Going back to like using wood Mackenzie data and looking at government take terms maturity of provinces and this kind of stuff. Developed some analysis to and and deliver that in, in a meeting to, like Liberian ministers and members of their national oil company when they came to Houston in that time. So that, you know, so that there was an educational aspect of it. Another thing, that became particularly with a less experienced without, the production history, without the fiscal overlay that’s mature and tested. Chevron captured three blocks and they had, maybe wildly disparate terms is it is a bit strong a characterization, but wildly disparate terms, I mean, and, you know, very different. And so and if you, you know, you’re hoping to find, a large enough accumulation, it might cross the boundaries of blocks and in terms of making investment decisions. So you want those to be driven by the probability of success in the prospective of, of the target rather than some quirk of, of terms in a particular block. And that’s the maybe in terms of pulling back one more time to the 100,000 foot view of any oil and gas activity. It, the catechism I learned it all begins with the rock that is there, the Alpha, but not the Omega. Because then you start layering on some of this other stuff onshore. And if you’re onshore in Africa, then the question becomes, what’s your out? How do you get that oil to market that becomes critically important. And then if but you’re now we’re looking we’re back to the offshore okay. We start with the rock. Then we’re looking at, you know, some of the, the, political risk, security risk, which is one of the reasons and in an area that may or may not be somewhat unstable, you go more with the offshore because, you know, the farther off the better, honestly, then, because then there’s just less, potential for issues there. Then, and then, you know, maybe skipping ahead a little bit without going through every wrinkle, but, looking to then at the fiscal term overlay. And so in the case of Liberia here with that fiscal term overlay, then there was a follow on, exercise where, additional engagement with the National Oil Company, with the ministry, with the executive, branch of the government to get a harmonized set of terms across the three blocks. So then you what are those those harmonized terms going to be? That’s a negotiation. And and so, I mean, we’re in one of the most heavily, heavily regulated industries in the world here in the States even as well. And so the governor, the government is going to be your partner in that business, or they’re either going to be in your business. However you view it, they’re going to be there. And so so it’s like, okay. And Chevron was very much, and continues to be full engagement. Right? It’s like, hey, let’s, you know, we’re a guest in your country. We want to make, you know, we want to engage in a mutually beneficial extraction of the resources that you, that you happen to have. So, so taking that approach very much in, in that exercise. But yeah, so then getting into on the offshore and the offshore stuff that may be different than onshore and getting back to that implicit definition, say onshore, that’s unconventional. And then maybe to further get to that, that fiscal and regulatory overlay that’s onshore or unconventional in the U.S., which then is and what differentiates onshore a conventional in the U.S. versus other places, then, is private ownership of the mineral estate, which doesn’t really happen, out of happens anywhere else but where you got, you know, Bubba and Sissy are getting mailbox money because, the that land that Aunt Tilly passed along in the family happened to have, you know, some some roof cap and spray. Bury under it or whatever the story is, you know, for that. But and that’s one of the things that has made that the incredible story of, of the explosion of production from the unconventional possible in the U.S. is that private ownership of the subsurface estate. So so it gets into, you know, it all begins with the rock, but it doesn’t end there.

Michael Tanner [00:19:35] Know it.

Bennett Williams [00:19:36] And that’s probably a good place to hand the doc and stick back to you, because don’t get me started.

Michael Tanner [00:19:42] No, I. Another really interesting thing that I was I always like to go back in as I’m prepping for these, I go read the transcripts of the not only go read the presentations, but I like to listen to the questions that the analysts ask. And it’s it’s a lot of handshaking. I mean, none of these analysts are going to come out and say, oh, Chevron, you made the worst deal of all time. You know, they want to make sure they can ask. They want to make sure they can ask a question at the next earnings call. They don’t get booted from it. But one thing you know, I am a big fan of Paul Sankey. He’s he’s he’s kind of a legend in the oil research phase. He brought up an interesting question specifically around that production sharing contract, something that you brought up talking about, specifically kind of the terms of the deal and that, you know, the the production, you know, PSC is kind of that technical term, as you would say, for the implicit contract you have between who’s, you know, the oil operator and the government. And you mentioned that, you know, depending on where you are in the lifecycle of the prospect, it it can it changes the at least from an M&A standpoint, it changes, where, you know, it changes sort of how the deal looks. Do you find, you know, because one of the things that Paul Sankey brought up was, was there any risk to the production sharing contract that Exxon has and ship and now that Chevron was supposedly trying to buy has Chevron is going to enter into the risk around that contract. So and this is a opinion, but kind of tossing it back to you as a question is my assumption would be then based upon what you said of, hey, you know, if there’s exploration, the government’s going to take whatever deal terms a company throws at him because they’re not sure if there’s any oil there. But as you if you find oil and you hit oil all of a sudden, I’m sure the government turns around and says, wait a second. Now we’re looking at our deal terms here in our neighbors to the east, have a lot better, are making a lot more money off the same amount of oil we’re making. So how is the these contracts and these production sharing projects, I assume over the the resource life cycle change? Are they can they change it will. I mean, can a government just come in and say, yeah, I know we agreed upon this for two years, but we’re only a year in. And how we want more money, how how is that factored in from a risk standpoint?

Bennett Williams [00:21:49] Oh, that’s the that becomes the game. And I, I, from a several layers removed, saw a master of it, when I was at Chevron, Mister Ali Bashir, he was the president of the Africa, Latin America, upstream company and and bombing. Right. This monster field, producing a firehose of of cash flow and playing defense on contract terms. There’s a big part of the biggest part, probably. And that’s a relationship game. And, and, was the master. And so, and that’s when I was like, oh, you know, in terms of coming to this realization, well, the deal’s the deal. Well, yeah. No, we’re getting the deal. This is a constant attempt to to retrain or maybe. No, no, no, we’re going to honor the deal, but we’re going to add this requirement that you invest X amount in educational skills transfer. National, hires, a series of alternative take mechanisms that begin to evolve and are added to skimmers. And it’s like, okay, what then what is the the dance of aware. What’s in it? You know what? Okay, we’ll take an acceptable hit and then the for example, the there’s a, a strike that, the national, all the workers there go on strike. You’re, you’re you’re in country offices are closed. Right. You are not going in. And so, you know, then everybody goes and and pounds on the table and then they end up getting another 25 or $0.50 an hour. Labor off X is like not that it doesn’t impact returns, but it is one of the lower or least impactful when you start doing sensitivity plots or, you know, in terms of what impacts your returns. So it’s like, okay, then, you know, you, you, you, you shut down something in the legislature about an additional windfall profits tax or something, say and then but the, the let the labor guys get their $0.50 an hour, increase and then they go beat on their chest on their membership and throw some red meat on the table. And you go back to the board of directors and throw some red meat on the table. And then it’s like, you know, you’re right. Ding, ding and get ready for the next round. Because it’s. It’s a continual, dance. It was an observation that the that I saw in practice. And and it’s just the nature of of the beast. Because you’ve got this irreversible, effectively stranded investment, right? That the only way that oil is getting moved is if you are there long enough to pump it out of the ground and, and then the host country, particularly the countries that have, relatively speaking, lower reserves and higher populations, have a tremendous amount of internal, political pressure to maximize the, the value extraction to the host country. Right. And so, so that that’s a very that’s just it’s it’s part of the landscape. And so the countries that do that have companies that do that effectively will be there for a very long time. Great case study there around Venezuela. They went through, what they called in places mixed up, which was, mixed companies, and it was moving to more of direct ownership, JV, but effectively a partial nationalization of the, of the resource. And so, and this is in the, in the larger, in the, in the heavy oil in Venezuela. And when they were and when, and this was under Chavez. Right. It’s Maduro currently. He was lieutenant of Hugo Chavez. So, when Chavez government was bringing that forward, then the Chevron guys put on their red ties, right? And and went and sat down at the table and talked with their, their, counterparts from the government. Exxon walked. They said we are. No, we’re not going to invest in your country. If this is how you’re going to play. And both of it’s a real one of the things that that, you start a framework of analysis you can apply this stuff is looking at using explicit and quantitative game theoretic approaches. And and it’s not a rabbit hole that I really want to go down. Now, there’s some I can give you a couple suggestions of folks to talk to about that. But there were sound reasons for both of those decisions. And so, if and when, Chevron is still producing in country and in fact, even though the, the, I guess sanctions went back on, because, Maduro is at playing nice around letting, a real election occur, the Chevron still got some license to produce to help pay back some debt. So they’re still there. There’s playing a very long game. The oil was there before Hugo Chavez. The oil was there before Maduro. The oil is there after Chavez. It’ll still be there after Maduro. And and I believe so will Chevron. But that’s their strategy and approach and how they play the game. Exxon and being big enough to do it Exxon can can. Take the cost of that. And that’s an investment in reputational, you, being a tough guy. I was going to use some other vocabulary, but, being a tough guy. And so. It was because they weren’t the only ones who walked. ConocoPhillips walked as well. If you think this is going, this is maybe the Wayback Machine for some folks, but ConocoPhillips walked as well. Which actually accrued to the benefit of Chevron because the the value that the, Chavez government was looking to extract, they took out of the, ConocoPhillips position, who was a joint venture party in the the the same asset with shell, in any case, without spending too much time on that. But it’s the. So there’s different approaches and how to go fill out this stuff, but it’s a continuing risk of the landscape internationally, and particularly given the scale often of these discoveries like Guyana, which is absolutely unaware that to like 12 billion barrels of recoverable or something. Some number come a very large, and so, that’s, there’s a lot of money there and so and if now. There’s other issues with Ghana because of the the the very limited size of their economy and the smaller population base. What’s the absorptive capacity of their economy for investment in cash? Effectively is is becomes another question. Elements of the resource curse and some other conversations you could have around that. Again, perhaps not too straight on at the moment, but it’s, it’s a it’s an interesting question. Pulling all the way back to where we started again as a frontier. That’s very, generous terms from a company perspective. And, but the political second guessing. And that dance has already started in Guyana once the risk capital was spent. And it turned out that the imaginative geoscientists who came up with this crazy idea that there might be a boatload of oil offshore Guyana. Let’s go spend a couple hundred million dollars and figure out if that works. Once we gin up some some co ventures and a farm out deal that farm out, that was shot pretty widely, before anybody knew what was there. And it was like, it’s like, a replay of what happened when Petrobras started drilling in the Santos Basin, which is a, you know, seven, eight, nine, I guess. But it was like, they and it’s another billion barrel discovery and another billion barrel discovery and another billion barrel discovery and, you know, and so, but it’s not Oprah, right? Because it’s it’s Exxon. You see, they get a billion barrels and they get believers. Anyways, so, Exxon has and Zanuck, which we haven’t touched on, will come into conversation at some point. Let me stop talking and hand it back to you before I, ramble too far down the, a path that doesn’t isn’t germane to our conversation this morning.

Michael Tanner [00:30:17] No. Absolutely fascinating. And I think, you know, you that dance as you talked about between, you know, how once these agreements are in place, you’re really it’s it’s how good is your relationship with your counterpart in the government. You mentioned that. You know, there’s you know, everyone’s got to come back at these kind of renegotiations and, you know, said, put a little bit of red meat on the table for both of their, both of their, their partners. And I think it’s, it’s super interesting. And I think, you know, how that models into a lot of these offshore deals. I think it’s fascinating. I want to kind of shift over specifically to Guyana before we dive into the deal. From from your perspective, how does I mean, Guyana had was was discovered, quote unquote, and, you know, kind of 2015, 2014 timeframe started producing 2018, 2019. So you’re talking about four years of risk capital being spent. Where is where does Guyana fit as a as kind of a whole within kind of the new landscape of kind of where the oil and gas business is going? People said it’s the the greatest oil discovery, in the last ten years. I probably agree with that. But where do you see kind of Guyana as a whole fitting into kind of the future of where oil and gas is going?

Bennett Williams [00:31:28] Oh, well, it’s it’s, it is, if not the greatest one of the, the the dream may be out. Let’s see what, how things work out offshore Libya now, as the they they finally figure that out because a number of wells were drilled there, before the they got the figured out exactly what worked. And that that’s one of the hallmarks of exploration that types too. You go out, you go drill a well, it’s a duster. And what that does is inform you of, you know, maybe you can figure out there’s a working petroleum system, but the exact type may not have been the first idea. So. And does the company have the appetite to go out and risk another, 50 or 100 or 150 or $200 million, as a consortium to to go test that next idea. So it it’s a it’s I mean, it it’s huge. It’s a big price. You know, what do we say, you know, over ten, but 10 to 12 billion barrels of recoverable resource. And one of the really fascinating things is to see, Exxon approach it like, a mid cap independent. And by that I mean the historically the majors would go in and go in then and appraise the whole thing and look at it all and figure out this, the single most optimized way to develop the whole thing. And what Exxon did was go out and they found and we got to like, we got a whole bunch of oil here and there. There’s probably more. But they in in to, to to go from discovery to first oil in a four year cycle for any company is accelerated and for a major is absolutely, extraordinary. And so, you know, let’s just take a moment to recognize that kudos to Exxon, as the operator. So, which then improves your financial returns and, and all those kind of characteristics. The so it’s, I mean, it’s it’s a big, it’s big. It’s going to be, you know, in terms of where what percent of global production is an interesting question. And but really, the most representative one is B what percent of global exports is what you want to have because it’s the, the how much of that oil is getting traded and, and all the Guyana oil is getting traded. So that’s really the relevant unit of analysis or framework of analysis in my perspective. And I don’t know what the answer to that is, but it’s, it’s going to be some significant amount. And it’s part of the reordering of, of oil flows, around the world. One thing that, that it, it doesn’t address is and that’s the need for heavy oil in the refinery stack in the U.S. and there’s, you know, roughly speaking, there’s kind of three kind of big buckets in quality, for oil and an awful lot of the kit on the Gulf Coast in particular is geared towards heavier crudes, heavier and more sour, but heavier crudes in particular. And, and they’re short of that because of the, the decline of production from Venezuela and because, Mexican Meyer was one of the other big, lower grade crudes that was feeding the refinery complex for optimized, production for to get the for the most profitable utilization of those, very complex refineries. They need a certain amount of that needs to be that heavier oil going into it. And so the makeup of the oil, it’s not just the the total production, but the makeup of that or the quality of that production. And then where’s the, the, the natural home for that. Right. Because, even though it’s, it’s, you know, a straight shot, the, the even lighter, sweeter stuff is coming from the onshore in the U.S. and so, you know, where, where, where is its home, you know. And is that gone now? And, you know, I’m a trump of that’s equity production for CNN. I don’t know if they’re taking that all the way home, but it’s, you know, or there’s a it’s a, you know, it’s it’s it’s fungible. Right. We’ll, we’ll, we’ll exchange these millions of barrels here, and you give us those millions of barrels back closer to Asia Pacific and that kind of stuff. But, it it matters. It’s material it on a global scale. And it’s certainly, a feather in Exxon’s cap and, and a a good chunk of their, current and, and more of their future cash flows.

Michael Tanner [00:36:04] No, absolutely. I think that’s a that’s a really interesting point of how much of the oil you’re producing is actually being exported versus just kind of being traded around, with, within, within. You know, whether it’s the United States or abroad. So very interesting. I, I think you’ve done a great job of setting the stage. So I want to kind of turn our attention to the the actual deal here. So as people who listen to the podcast like to know, I always like to start with the, the, the presentations, as everybody knows, Chevron went ahead and took out and purchased Haas, who owns a 30% interest in this entire Guyana field, or the, the block that is this. I don’t actually know how you pronounce it. The star block. How do you pronounce the actual block?

Bennett Williams [00:36:47] Broke is what I’ve heard. I don’t know if that is correct, but that’s that’s how I’ve. I’ve been saying it.

Michael Tanner [00:36:54] So. Great. So, this this tobacco block, they own about a 30% interest. ExxonMobil owns 45% of it. And, Chinese national, offshore oil company, Schnook, as I like to call it, they own, about 25%. So you can see, kind of the ratio there. But Chevron, having no interest in Guyana, decides to go, buy has they they announced this deal way back in October of 2023, which is super interesting as we read some of these transaction terms here. They valued at about a $60 billion valuation. If we can go ahead and bring up the slide here. If you’re listening, I’m talking about slide four specifically on the, Chevron Hess presentation. You’ll see it’s 100% equity consideration. Which again, I think is something interesting to talk about, clearly has wants the ability to participate in the upside of Guyana and not necessarily sell out for a specific cash number, which I think there’s something in there, only a 10.3% premium, which I thought was maybe a little bit light. But going back to where the, you know, the 100% equity there’s still is upside. You know, now you’re getting Exxon stock. So you have the ability for that stock to appreciate as well. So the premium attached with that may or may not be something that is too concerned. John Haas is going to join the Chevron board of directors. And then I love this last part here. Target closing first half of 2024. Well we swung and missed it that one. And and this thing may not close till 2025. You know, the next slide they specifically talk about is Guyana. They bring up, you know, specifically, all the different stuff, you know, 11 billion barrels of oil, about 30% interest in that. You know, it’s a super high cash margin. What’s interesting is they also have a little bit of, acreage in interest in block 59, which is over. And, sir, mine, which I don’t know. You know how that works specifically, I assume you have two different deals with both the Guyanese government and then the sir mine government. Right?

Bennett Williams [00:38:57] Yeah. They’ll be they’ll be different. Block contracts with the, consortium of investors. And then, I’m a it’s should have the same José, which is something have. But it’s that there’s the there’s the first level, which is how do we take how do we divvy up the, the money that comes in for a barrel of oil. That’s that production sharing contract. It’s tax royalty in the states. And those there’s some other schemes too, but those are the two biggies that you run into. And then another layer on that is the deal between the companies as the contractor group or the consortium, the joint venture partners. How do we how do we operate together? The joint operating agreement. And that’s where the rubber hits the road in this question of interpretation that is in arbitration currently. But going back to the the terms of the deal you were outlining.

Michael Tanner [00:39:52] Yeah. No, I we’re about to die. Then I think deep to the joy. Real quick though, again, to kind of give everybody, an overview. We’re looking now at slide six. Specifically, what are the three different areas. You know Hess’s we know they have their big 30% stake in Guyana. They also have a big block in position and a much smaller Gulf of Mexico and, Malaysia position, which I think is is interesting. And to point out, we’re not going to spend much time talking about their back in position, if only because the the most of the value of this deal comes from the Guyana position. And specifically, you know, one of the things I like to do is is go run the PDP. All right. Let’s just take all the producing wells, specifically in the United States, in the Gulf of Mexico. Let’s do a quick PDP analysis. If you’re talking about a $60 billion deal, I get about 7 billion worth of PDP. And when you do the math on that, that’s about 11% of the overall $60 billion value that’s wrapped up in the PDP. I go back to I love Paul Sankey. He he’s quoted as saying of the 170, dollar per share price that Chevron paid, he’s attributing about $140 to Guyana, which means, there’s about 20% left over for the PDP. So obviously my PDP analysis isn’t including a lot of the sticks that you could theoretically go drill in the back. And so, sure, double that for the amount of a development that could happen. We’re in the same ballpark there, but it goes to show that the majority of where has is gone and their stock. And this was pointed out in the earnings call or not, the earnings call, but the the merger call was that their, their stock over the last three years has been up 95% relative to the S&P 500, mainly off the back of the discoveries. That just says, you said a billion barrels here, a billion barrels here. So super interesting. And, you know, I think this deal would have been, you know, pretty easy to cover and pretty easy to talk about. And when it first happened, the big question was, hey, Exxon, how are you going to work with Chevron? And what’s funny is the first reaction out of Exxon was, oh, we work with Chevron around the world. We will continue to do that, blah, blah, blah, blah, blah. Well, then about two weeks later, things got a little, things got a little interesting. And there was form, you know, from from October until about January, February. This was all secret. But what, what what what we discovered was that two weeks into the deal, somebody at Exxon put their hand up and said, wait a second, guys. We might actually have first right of refusal on any deal that happens in Guyana based upon the joint operating agreement that we signed. And they were stuck in secret negotiations for about four months until in, you know, mid February, the, you know, Exxon kind of came out and said, guys, we’re we’re moving this to arbitration. We and I love this quote, you know, from Exxon, we know what’s in the deal because we wrote the deal. And I think this is super interesting in terms of. The politics at play here. So. From you know to, from your standpoint. Ha. You know before we dive into some of the specific José language, how does some of this stuff develop. You know obviously Chevron and has they come agree upon the deal has knows about the José because they were involved they signed it. Chevron probably got access to it as part of the data room or should.

Bennett Williams [00:43:12] That’s all that would be, would have been a significant point of due diligence. And they definitely got a ton of scrutiny from Chevron lawyers and directly informed the manner in which they structured the transaction. No doubt about it. Now. Now, what is it intent versus what is literal meaning and then how that’s interpreted? Yeah. That, that’s the dance that we’re engaged in currently.

Michael Tanner [00:43:39] Well, I think you, as you said it, it’s intent versus plain English. There’s a lot of lawyers there going this is a lawyer’s wet dream because, you know, now we get a we get to sit down and and argue language here. So talk to me about the idea. And I guess before we do that, let me let’s read here that Harvey or Bly, as we talked about this prior to going live here, he wrote a great article that kind of lays out what the different what the actual point of contention here is. And the point of contention is the idea of within every jail for these large agreements, you have this change of control which goes in there. And while we don’t know specifically what that Joe says, there’s only three parties that know that. And what’s funny is two of them think one thing, Exxon thinks another. And now, Chinese national oil companies joined the arbitration. So it’s really 2V2 here. But really the idea is what does that change of control look like? And again, well, one of the top executives at, at, at Exxon, Neal Chapman, this is his quote on March 6th, we understand the intent of this language of the whole contract because we wrote it, which is super, which is, as a matter of fact, to say, hey, we know better than you because we wrote it. But what what what Harvey Bleier showed was that he he basically did a draft, José, which is something it’s 94 pages long. Holy smokes. But this is a the Association of International Energy Negotiators model contract, which is I mean, this is all the way back from 2002, but most likely this was the basis to build the José. And within that and we’ll throw this quote up here because I’m not going to necessarily read the whole thing because it’s, it’s a little bit, to lawyer B, but basically change of control means any direct or indirect change of a control of a party, whether through merger, sale of shares or other equity, interest or otherwise, in which the market value of the parties participating interest represents some percentage of the aggregate market value of the assets of such a party and its affiliates that are subject to change of control. For the purposes of this definition, the market shall be determined based upon the amount in cash a a willing buyer would be and a willing seller, or would be willing. I’m. Yeah, a willing buyer would pay a willing seller in an arm’s length transaction. I’m going to just throw it back to you to kind of get your thoughts on that. But I, I, I this does go back to the 100% equity discussion as well.

Bennett Williams [00:46:07] It’s I don’t think there’s a plain English language version of this conversation. Let me just put it out there like that. And I there was, Harvey, your article, Harvey correctly pronounce his name. It is, is great. Then, I, ran into a a another. I’m a member of the I n formerly I p an association of international energy negotiators. And so, and there’s some question as well as at the, the, the 2002 model contract that was employed or was it the 2012 because, one of the things that that I and does is it develops these in taking decades of painful learning from, from, members and the experience of other companies that then develop these model contracts and reduce the issues in play to a set of multiple choice elections. So then they’re basically pretty much every issue that’s ever come up is laid out on the table. And here’s the, the buckets. And, and a lot of times a term sheet. In developing a term sheet for a deal right in the stages before you get to, a signed letter of intent, you’re going to be swapping term sheets back and forth. In that term sheet would be we’re going to use AI and for model contract for the basis for our challenge. So you know, so you get that that negotiating principle out there. And then that really corrals the conversation focuses it directs it, makes it much more productive. Rather than trying to rewrite from a blank slate a new joint venture agreement, which means that. May miss, covering some issues that, you know, end up being, a huge, hairball at some point in the future. So. So it’s a super valuable. Tool set of tools, really? Because there’s, gas sales agreements. There’s just about anything under the sun that is part of a oil and gas deal. There’s a model contract for. So, so is it the 2002 contract or the 2012 contract? Model contract. And there’s some very minor variations in the, language of definitions there. But this whole thing may turn on minor variations of definitional language. Another member of I and a gentleman named James English wrote a great, and super down in the weeds. Post on LinkedIn for this, and I reposted it and and through the Tldr on top, which is like still a jump ball. And that’s I mean, so, I am not a lawyer, and I ain’t even going to try to, you know, I’m not even going to pretend I slept at a Holiday Inn Express last night. But. Yeah. So it does turn on this very, you know, almost esoteric, very definitional stuff. Where’s the comma? Almost kind of grade of of parsing of this language on one level. The other one is then you get into arbitration. Well, it’s a one before arbitration in Paris. Under UK law, I think it’s the relevant law here, too. It’s not in the U.S.. And what what probably most of your podcast listeners are going to be used to is the US approach of things, which is very. Averse to restrictions on sales of shares. So in the US they basically that there’s kind of two frames. You do an asset level deal which is like okay, I’m just going to sell you. If we use the guy on example, I’m just going to sell you my chunk of the Stabroek block, in that case under the typical U.S. setup. If there’s a rover in there. A right of first refusal. No question that applies. No question about it. In the U.S. and the typical U.S. practice if it was a corporate deal. Then it almost certainly would not. Because there’s the the the change of control. Almost without exception of the US extinguishes. The roofer. If it’s a provision in the jail, it. That’s sort of the industry practice or close to industry standard, if that’s. I can say that. What. What what becomes. You know, internationally then it’s it’s a much little less clear cut case. And there’s a lot more host countries have to say about approving people. And there’s, you know, the question, particularly these very large investments, that need to happen and at the tail end of life are going to be some very large decommissioning obligations that need to be met. Then there’s there’s a legitimate interest of companies in making sure they got a counterparty that can perform or avoiding counterparties that are otherwise, you know, sanctioned parties or, or some, some other, color or issue that would make them not a suitable co venture. So, so this is where you get into then and then now we’re, it’s into this, into the arbitration arena. And so it, it becomes, it’s a little. Squishier. Maybe. And so. So then it’s there. The. Okay. What’s the. What’s the result of that going to be? Oh. I mean, that’s that, you know, in terms of the opinion that it in some respects the more interesting question to me becomes this gets back to that game theoretic framework. What game are we actually playing here? Is Exxon trying to buy that? I’m not convinced that, you know, the election to take that piece of the deal is necessarily what they’re after. But if they’re what they’re after is the enforceable right to do so. Then what they have then is a lever to extract concessions and enhance the returns on their existing investments.

Michael Tanner [00:52:26] Interesting. Flesh that out a little more. What do you mean by the enforceable? How would that increase? Okay.

Bennett Williams [00:52:32] So for example, there’s been literally billions of dollars of investment into these contracts and it’s still happening. And in the pre-production assets, the balances are accruing and that those moneys have been invested by has Kinnock and Exxon. Under a PSC. There’s what they call cost recovery. So, you know, and it varies by contract. It might be the first 50% of revenues or a cap at 70% of revenues. It might be uncapped. I mean the but typically there’s some limit to that. Some amount of the revenues are going to be exposed to government take. But the all the that that CapEx, all the at the front basically at the front end of production, all the risk capital that’s gone into the asset can be recovered. Your cost recovery to, to create, some some returns then to divvy up accrues to the to the invest the consortium write to the contractors. contractors group is often how that’s referred to within the PSC contract terms. So there can be in a side agreement of disproportionate capital recovery that was the hallmark of a deal. The first thing that I did in Anadarko when I landed there was figure out what was going on in a deal that had disproportionate cost recovery so that the previous investors get the the money back that the other party invested. The one that sold. And so, so what that would be then that’s like so, so and then but everything else gets divvied happened to be some fraction of that typically. But it’s what that then is like okay, they’re getting They would get it. You know, it’s like. And if you don’t. Let you know. Agree to the Sheikh now. That may be not the right characterization either, but, you know, if you don’t, find these terms acceptable, then we’re going to elect on our rover, which then blows up the transaction because, a conditions precedent for my understanding is this, that a condition precedent for closing the Chevron Hess merger is that the transfer of the Guyana asset to Chevron, that doesn’t happen. The deal doesn’t happen. At the same time, my understanding of the rover language is the transaction must close for the row for provision to be effective. So. So it’s either the deal proceeds or there is no deal. And if there’s no deal, then there’s no election. And and Exxon would have to go do its own acquisition of all of us. Not just this piece. And I don’t think they’re interested in the back end or the the production in the Gulf of Mexico. And the Malaysia thing. So. So it’s, you know, what is it? What’s the game that’s being played here? There’s actually. Have you ever seen the movie The Princess Bride?

Michael Tanner [00:55:36] Yes.

Bennett Williams [00:55:36] The battle of wits. What is the game that’s actually being played? Okay. And that’s not original. That was Frank cook, at, Chevron used that in a in a lunch and learn around game theory, applications. And it was, it was a great friend. Anyways, so. Could that that could be a play. They could be interested just in and keeping, you know, blowing up the deal, keeping Chevron out, maintaining their supremacy, if you will, within Guyana. My under what I heard is that the, the Chinese government is very interested in having Chevron come into there as a counterweight to Exxon in and have, you know, and, even more so perhaps as an additional counterweight to the saber rattling going on next door by Maduro talking about the. Oh, so that here. That’s right there. There’s some, terrain that’s supposed to be in historically Venezuelan. And we’re going to come in and you’re taking our oil and leaving, you know, just the, and that, you know, there’s a dynamic within Venezuela that then turns the Venezuelan public a not to be focused internally on all the disasters that are unfolding within that country because of how it’s being mismanaged, but rather on those those dirty gringos and the Guyanese who are plundering Venezuela’s natural resources. So, that’s a different game and topic, but, so what is it? What’s in play? What’s what are they really trying to accomplish here? Would they like to exercise on that? Maybe that is really what they’d like to happen, but, that doesn’t appear to be one of the potential outcomes as the, conditions, precedent, requirements for the transaction to proceed as outlined by Chevron. So, so then what is it that they the what what’s the what’s the win for them here. Well, that defines the game then. Right. And so what is that? What is the game that they’re actually playing. And that and Chevron may have just been playing hardball with them and say, you know, that Exxon said, hey, we got this, this road for you. Give us some sugar. And, and they were like, nope.

Michael Tanner [00:57:59] So what you’re saying is Exxon’s been building up their tolerance to cane powder over the past five years to sustain this.

Bennett Williams [00:58:06] For those of you who are Princess Bride fans, that may be the case. So. Yeah. So it’s it’s it’s fascinating stuff. And it’s it will be interesting to see. And it’s, you know, and I. I’d like to see it proceed. I mean, but I don’t know that I could make an informed probability assessment that will occur.

Michael Tanner [00:58:29] So why you said I don’t mean to cut you off here, but you said another thing really interesting of that the Chinese government is really interested in having Chevron there as a counterweight to Exxon. Why does the Chinese government necessarily what’s why would they care? They’re getting their money regardless. And they can they can bully. They feel like they might have the right to bully whoever.

Bennett Williams [00:58:50] Well, I don’t know that they. Yeah. They’re okay. You’re. I don’t think there’s a lot of Guyanese bullion going on. Let me just say that, but I have not been in the room. So, and then Exxon, Reputationally has got the the, they are, hard nosed. Take no prisoners player and they have they’ve invested significant I mean, they and they play the game well and, and that’s, you know, and they, they made this they made this happen, this discovery and this development in this to to be in this wonderful conundrum that that exists today. So, you know, hats off. So. But the, ability of the government to influence acts on. It’s probably honestly, it’s probably quite limited, but. And has. In going to influence Jackson and Hess has been like. As the as the cash calls have come from Exxon. Cash call after cash, call after cash call to invest in this stuff. And it’s like, what a great problem to have Exxon’s have been. I mean, it has has been out there flipping the sofa cushions and shit, you know, turn it little kids over for their lunch money to try to keep up with the pace and the scale of the investment that excellence been undertaking. And wouldn’t that be a wonderful problem to have? So. So they’re not, you know, their their ability to then, Chinook, the Chinese national offshore oil company is, they’ve got subsidized capital. So that hasn’t been an issue for them. And they were. Smart enough to take this risk when you know, pretty much the whole industry went and looked at this borrow a block and it’s prospectively ex-ante before the first well was drilled and and you know, by that took a pass or weren’t ready to, to meet Exxon’s, terms. So. Yeah, I don’t know if that answers the question, but but it’s it’s. It’s going to be the. A player of equal scale. You know someone who’s they’re not. You know how many thousand pound gorillas are there? It’s a pretty small population, right? So you got a 1,000 pound gorilla that’s got, you know, doing this, this thing, and it’s pretty much, you can ask it nicely, but it’s the host country government with, with previously having, a very small economy, small population, you know, without the, the, legal muscle, without the, you know, all the and then having a set of terms that they agree to in advance because there was no production. And then it’s, you know, then, you know, and then it now they find themselves, in this position, working with Exxon at the same time, they’re playing defense politically, domestically. Right. Because now you suddenly because Exxon came in at risk, you know, whatever. The first of all was, $100 million or, you know, pick a number. There’s this, you know, huge. Bounty of cash, but now the domestic players are coming out and saying, oh, you gave away the natural endowment of the country in this, you know, and all the armchair quarterbacking that goes on. And, you know, and they and and it’s, you know, it’s they may be sincere or maybe just to try and gain political advantage or, you know, those and those aren’t necessarily mutually exclusive. So it becomes problematic then for the host country to get, you know, it’s like, okay, well, that did they become more vulnerable by then getting, you know, it’s so it’s a conflict. You know, they’re in a, in a complicated situation as well. So then the, the, the whole issue of what’s going on next door and everything, and it’s like the. Certainly. There are certainly American interests to protect. If there are any conflict it developed. But it wouldn’t hurt to have Exxon and Chevron banging on Washington saying, protect our interests. Right.

Michael Tanner [01:03:34] Yeah. No. Super, super interesting. And I think you bring up a good point of, you know, the first question I had is why would you sell if you’re has you got you’ve you’ve somehow backed yourself into 30% of what probably is going to be the best resource play going forward for the next ten years now. But you bring in an agency point. They they’ve spent a lot of capital there. They’re looking under the mattresses. They’re shaking everybody they can to figure out how they can come up with the CapEx to actually invest and keep up with these cash calls. I think it’s interesting. So Chevron has come out and said, if that if Exxon prevails in arbitration, it’s not going to go forward. It has there has to be, which I think is interesting. It means they’re really only in this for access to Guyana. They could care less about the banking. They could care less about all this other stuff. Exxon really hasn’t necessarily come out and showed their hand. What, what. And so I’m interested you know, I you know, to kind of not wrap this up. But you know, obviously we’re we’re not going to be able to figure out who’s going to win. If we knew who was going to win, we’d be lawyers that we just be gamblers. Because it’s going to come down to if you read the article that will list here in the description, it’s going to come down to a few interpretations of words. So here’s the, here’s my my one question to you, your Exxon Mobil in this what you know, from a game theory perspective, what is Exxon hoping to get out of this outcome, by trying to block this merger?

Bennett Williams [01:04:58] Well, is that the going back to what’s the game question? Is it a block? You know, it’s like, and it could be that there are a set of outcomes that would be acceptable to exon blocking. It may be one of those under certain circumstances, for now. And, and it’d be like, okay, Exxon to start with or go to arbitration because they simply which creates delay. Now it’s the delay in itself a viable, goal for Exxon. I don’t think so. I mean, you know, why go to the trouble and expense? Just to be obstreperous? Maybe, but I don’t think so. I mean, I think they have, they’re looking for something that will, financially benefit their shareholders. And so it’s like, okay. And they may, you know, then, so we go to arbitration. As agreed to within the terms of, whichever version of the I and model contract was, was written into the joint. So good. And what do you want to come out? You want an enforceable right. So if it decides on Exxon’s behalf, then Exxon says we’re exercising. Or Exxon says Chevron can’t. Let’s reopen that conversation about. Cost recovery, disproportionate cost recovery, or whatever may or may not have been a topic of discussion or how, you know, we will be prepared to give up this right and not break your deal. For sufficient consideration. And then it’s. It’s a dance. It’s a negotiation about what, amount and form of that consideration would take. So. But yeah, an enforceable right. Of first refusals. What excellent wants out of the arbitration. And then the question becomes what would they do with that now? You know keeping Guyana as their, as a them as the sole, super major, sole IOC in there. Is that a sufficient. Is there a value in that when I mean, or why would you why would you pursue this route? You know, what is the motivation to do that? What are the winning conditions? What’s the game? Getting back to that question then. So I just kind of try to test out some of these other things that come as a result. And it’s, you know, it’s like, okay, well, you know, profit maximization is the notional, you know, their strategic elements and how you get to their long term. But something then that would say, okay, we think because we put this out, we made this happen. If you want to come in Chevron, we need we need to sweeten the deal for us. That’s my my swag. without getting spelling out the particulars but yeah that’s my silly swag about what Exxon may be seeking out of the steel. I mean if they have, they have something of value to exchange with Chevron. If they indeed have an enforceable rover, as they claim was the original intent of the joint operating agreement.

Michael Tanner [01:08:21] Fascinate, I think. You know, if if Chevron wins, we’re going to see a new the 2025 template for July. Going to be a new template. Come out for sure.

Bennett Williams [01:08:31] They. Yeah. There’s I mean they’re, they, they, they there’s revisions that, that are done. But then as I said, there’s a suite of these contracts that are, produced by AI and that, practitioners use and, and they are there’s always something in, in, revision for the next version, but it gets, it’s gets a significant amount of study. A lot of perspectives come in on it, and it’s so it’s, it’s a real, it’s an informed industry perspective on on what the issues are, what the selections might be. So then there’s this framework to apply and, and make for, a smoother path to a better deal for all parties.

Michael Tanner [01:09:17] Yeah. It’s regardless, you know, the last quote in, in, in the article that we read a lot from Harvey are bias is that, there’s a lot at stake here for the future. Big oil. So it’s it’s super fascinating. I really appreciate you sitting down today and diving into all of this, this contract language. I know I learned a lot. I know our listeners learned a lot. Before I let you go, is there anything else surrounding this, these negotiations that you feel is important to to think about as we’re as we’re all trying to come to our own conclusions?

Bennett Williams [01:09:48] Well, it’s what’s fascinating to me. Just a quick observation. Anything in terms of, how much of the conversation the M&A conversation has been, focused on onshore. And when we say onshore, then there’s all this embedded understanding, we’re talking about unconventional onshore in the U.S. and so, it’s, remains almost exclusively a US game. The only other place that’s really hot that I know of and that hasn’t been focused. Mine is Argentina. And there’s interesting stuff happening there in terms of above ground issues that make it more amenable to investment. But that this announcement by Chevron that they were going to take out cash primarily to get it together really kind of seemed to wake up the, financial world and maybe a bit of the industry around like, oh, yeah, there’s this offshore business, too. And in fact, the I’m also a member of, SPE Society of Petroleum Engineers and their and group had a, an event around offshore M&A. And it was the first and group thing I went to in about three years, because everything else has been 100% unconventional onshore. Yeah. And and that. That there hasn’t been my where most of my experience was. I did originate, Chevron’s acquisition of Chesapeake’s Delaware Basin acreage, about a quarter million acres, billion plus deal. And, participated in some smaller stuff. At Murphy around Eagle for. And that could that area so familiar with it. But the bulk of the experience has been more, offshore and international, which is, almost implicitly part of offshore, and certainly for these, disruptive discoveries for the big new fields is, an offshore exploration game, international offshore exploration. And thanks for having me.

Michael Tanner [01:11:54] No, absolutely. I again, I learned a lot. I know our listeners learned a lot. I appreciate everybody who who tuned with us. We went over an hour here. So that’s that’s awesome. As I always like to finish with guys, we’ll be back for the next deal.

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