Exxon Mobil and Chevron ‘s fight over lucrative offshore oil assets in Guyana could ultimately determine which of the two stocks end up on top this year, said Kevin Holt, senior portfolio manager of the Invesco Energy Fund (FSTEX). The U.S. oil majors have bounced back in 2024 as worries about a recession and weak oil demand that dragged the energy sector lower last year have not materialized. Exxon, however, has significantly outpaced Chevron this year, with the oil majors’ stocks gaining roughly 15% and 6%, respectively. Exxon hit an all-time high during the oil rally in April and has outperformed the energy sector and the broader market, while Chevron has lagged behind. Chevron’s performance in the second half of the year could depend on the outcome of its feud with Exxon over an offshore oil development in Guyana called the Stabroek Block. Exxon leads that development with a 45% stake, but Chevron is seeking to get in on the action through its pending acquisition of Hess Corp , which has 30% stake in Stabroek. Hess shareholders approved the Chevron merger on Tuesday, but its unclear when the deal will close. Exxon is acting as a spoiler , hauling Chevron and Hess before an arbitration court to defend its claims to a right of first refusal over Hess’ Guyana assets under a joint operating agreement. “We’re waiting on the arbitration to see to see what happens in terms of right of first refusal,” said Holt. Exxon and Chevron are the fund’s top two holdings , representing 9.73% and 9.27% of total assets in FSTEX as of April 30. “If Chevron and Hess win the arbitration, I think Chevron will outperform Exxon in the second half of the year, assuming that you get a ruling in the second half of the year,” Holt said. “If Exxon wins the arbitration, I would probably see Exxon outperforming marginally but it’s already outperformed.” Exxon vs. Chevron Chevron came into the year facing production issues in the Permian Basin and cost overruns at its Tengiz project in Kazakhstan that frustrated investors, Holt said. Exxon, the other hand, hasn’t really faced any execution issues this year, the fund manager said. Exxon’s performance is a reversal from the decade leading up to the Covid-19 pandemic, when the company underperformed Chevron due to its capital expenditures during a period when oil prices were low, according to Holt. Since 2020, Exxon’s stock has come up from behind and outperformed Chevron as the company has implemented capital discipline, the fund manager added. And investors have taken notice of Exxon’s lead position in the lucrative offshore oil development in Guyana. XOM CVX 5Y line Chevron vs. Exxon over the past five years Holt said the Guyana development is probably the best project the oil sector has seen in 25 years with very productive wells at a relatively low cost. And Guyana has come online as resources have become more constrained with the onshore shale play expected to peak in the near future, he said. Chevron would look very attractive if the Hess deal closes due to the latter’s large stake in Guyana, he said. If Exxon prevails in the arbitration case, however, the merger would terminate and Hess would remain a standalone company, raising questions about Chevron’s next move. “There’s a little concern that if Chevron doesn’t do the Hess deal, then they have to go and do another deal,” Holt said. “I think that’s a put a little bit of pressure on Chevron’s stock in the near term until this issue gets resolved.” It is unclear how long the arbitration will take. Hess requested an outcome in the fourth quarter, but Exxon has said the process will drag into 2025 . “Based on historical precedent and nothing else, from my lens it would favor Chevron and Hess,” said Holt of the arbitration, noting that a right of first refusal has never overwhelmed a corporate level deal. The fund manger sees Chevron’s other issues at Tengiz and in the Permian as short-term bumps in the road that will be resolved. The resolution of Hess, Tengiz and the Permian “will give Chevron a pretty good backdrop,” Holt said. “That said, Exxon is reasonably valued and it’s executing very well.” Further, both companies are “still pretty inexpensive relative to the market,” Holt said.
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