(Oct 1): The US antitrust regulator will allow Chevron Corp to proceed with its US$53 billion (RM219.38 billion) acquisition of Hess Corp on the condition chief executive officer John Hess is barred from the supermajor’s board, alleging he improperly communicated with Opec.
The Federal Trade Commission (FTC) said in a statement on Monday that Hess communicated with the cartel and its allies, praising their efforts to stabilise oil production and reduce inventories, moves that typically raise prices. Chevron assented to a consent agreement with the FTC that will let the takeover advance.
“Mr Hess’s communications with competitors about global oil output and other dimensions of crude oil market competition disqualify him from serving on Chevron’s board of directors,” said Henry Liu, director of the FTC’s Bureau of Competition.
The FTC voted 3-2 in favour of the agreement. The two dissenting commissioners criticised the decision as politically motivated, saying there were no concerns over competition nor laws broken. Commissioner Melissa Holyoak called it a sequel to the “fairy tale” reasoning the FTC used to block Pioneer Natural Resources Co ex-CEO Scott Sheffield from joining Exxon Mobil Corp’s board in May.
“Unfortunately for Mr Hess,” she wrote, “the author of every fairy tale must also fabricate a villain, and today’s action unjustifiably gave him that label.”
The FTC complaint alleged Hess frequently encouraged the cartel’s efforts to hold back crude supplies, citing public comments and private correspondence with Opec secretary-general Haitham Al-Ghais and his predecessor Mohammad Barkindo. It also cited private communications with an unnamed senior Saudi Arabian government official. Elevating Hess to Chevron’s board would increase “the risk of industry co-ordination”, the agency said.
Hess said in a statement that the concerns raised by the FTC were without merit. Separately, Chevron said John Hess will serve the company as an adviser on government relations and social investments in Guyana, where his company has a stake in a massive offshore oil field.
“I have the utmost respect for John, the company he has built, and the contributions he has made to our industry,” Chevron CEO Mike Wirth said in the statement. “It is unfortunate that our board of directors will not get the benefit of his decades of global experience.”
The Hess family’s stake in the company founded by John Hess’ father almost a century ago is worth about US$5 billion under the terms of the takeover agreement announced in October. Hess, 70, stands to become one of Chevron’s biggest shareholders when the deal closes.
The agreement marks the second time this year the FTC has barred a senior oil executive from joining a suitor company’s board. The agency reached a settlement with Exxon in May that blocked Pioneer’s Sheffield from obtaining a directorship, citing texts and emails that it claimed amounted to “collusive activity” with Opec officials.
Sheffield has denied any wrongdoing and accused the FTC of “publicly and unjustifiably vilifying” him.
For Chevron, the end of the antitrust review clears a key hurdle for the company’s biggest transaction since its 2001 acquisition of Texaco Inc. To close the Hess deal, Chevron still needs to prevail in arbitration over claims of rights of first refusal by Exxon and Cnooc Ltd to Hess’ most important asset — its 30% stake in the Guyanese oilfield.
The FTC opened an in-depth probe into the Chevron-Hess transaction in December amid a burst of oil-industry dealmaking. Democratic lawmakers asked the agency to study the deals more closely on concerns they could increase energy prices for consumers and suppress wages for workers.
The FTC conducted similar probes of Occidental Petroleum Corp’s acquisition of Texas shale driller CrownRock LP, and Diamondback Energy Inc’s purchase of Endeavor Energy Resources LP, opting in both cases against challenging the transactions. The agency also declined to challenge Chesapeake Energy Corp’s takeover of Southwestern Energy Co.
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