Kevin Holt, senior portfolio manager at Invesco Energy Fund (FSTEX), said the battle between Exxon Mobil and Chevron for Guyana’s lucrative offshore oil assets may ultimately determine which of the two stocks One stock will be at the top this year. U.S. oil majors have rebounded in 2024 as fears of a recession and weak oil demand that dragged the energy sector lower last year have yet to materialize. However, Exxon Mobil has significantly outperformed Chevron this year, with the two oil giants’ shares rising about 15% and 6% respectively. Exxon Mobil hit a record high during April’s oil price rally and outperformed the energy sector and the broader market, while Chevron lagged. Chevron’s second-half results may hinge on the outcome of its dispute with Exxon Mobil over an offshore oil development project in Guyana’s Stabroek block. ExxonMobil leads the charge with a 45% stake, but Chevron is looking to get in on the action through its upcoming acquisition of Hess Corp, which owns 30% of Stabroek. Hess shareholders approved the Chevron merger on Tuesday, but it’s unclear when the deal will close. ExxonMobil acted as a spoiler, dragging Chevron and Hess to an arbitration tribunal to defend its claim of right of first refusal on Hess’ assets in Guyana under a joint operating agreement. “We’re waiting on arbitration to see what happens with the right of first refusal,” Holt said. Exxon Mobil and Chevron are the fund’s two largest holdings, accounting for 9.73% and 9.27% of FSTEX’s total assets respectively as of April 30. Dragon will outperform Exxon in the second half, assuming you get a ruling in the second half,” Holt said. “If ExxonMobil wins arbitration, I might see ExxonMobil doing slightly better, but it’s beyond that.” ExxonMobil vs. Chevron Chevron faces two battles this year, Holt said Production problems in the Rican Basin and cost overruns at the Tengiz project in Kazakhstan have frustrated investors. Exxon, on the other hand, doesn’t really face any execution issues this year, the fund manager said. Holt said Exxon’s performance was a reversal from the decade before the Covid-19 pandemic, when the company lagged behind Chevron due to capital expenditures amid low oil prices. The fund manager added that Exxon has come from behind to outperform Chevron since 2020 as it has implemented capital discipline. Investors have taken note of Exxon Mobil’s leading position in Guyana’s lucrative offshore oil development sector. XOM CVX 5Y Line Chevron vs. Exxon Over the Last Five Years Holt said the development in Guyana may be the best project the oil industry has seen in 25 years, with very productive wells being obtained at relatively low cost. He said Guyana has come online as onshore shale oil extraction is expected to peak in the near future and resources become more stretched. If the Hess deal goes through, Chevron would look very attractive because Hess has a large stake in Guyana, he said. However, if Exxon prevails in the arbitration case, the merger will be terminated and Hess will remain an independent company, raising questions about Chevron’s next steps. “There’s a concern that if Chevron doesn’t get the Hess deal done, then they’re going to have to do another deal,” Holt said. “I think this will put a little pressure on Chevron’s stock in the short term until this issue is resolved.” It’s unclear how long the arbitration will take. Hess asked for results in the fourth quarter, but Exxon said the process would drag out until 2025. “Based solely on historical precedent, from my perspective, this would favor Chevron and Hess,” Holt said of the arbitration, noting that the right of first refusal never overrides a corporate-level deal. The fund manager sees Chevron’s other issues in the Tengiz and Permian Basins as short-term hurdles that will be resolved. The settlement of Hess, Tengiz and the Permian Basin “will provide a very good backdrop” for Chevron, Holt said. “That said, Exxon is reasonably valued and has executed very well.” Furthermore, Holt said both companies “remain quite cheap relative to the market.”
