Are Exxon's costs bloated? Jagdeo says billion dollar cost-reduction in Liza 1, alone , worrying

Are Exxon’s costs bloated? Jagdeo says billion dollar cost-reduction in Liza 1, alone , worrying

Jan 31, 2020 News

Many concerns have been raised over the years about the mammoth development costs estimated by ExxonMobil and its partners, Hess and CNOOC, for Stabroek Block projects. The initial costs for Liza Phases One and Two – both already approved – totaled about US$10B.

Opposition Leader, Bharrat Jagdeo

Those concerns were premised on the fact that every single dollar claimed by ExxonMobil, Hess and CNOOC would have to be recovered from the oil revenues before Guyana could get some of the profit.
For the Liza-1, in particular, the cost was drastically revised by nearly US$1B, according to Chief Executive Officer (CEO), of Hess Corporation, John Hess.
During his company’s fourth quarter earnings call for 2019 on Wednesday, Hess specifically stated, “…Liza Phase One was budgeted at US$4.4 billion gross, including the purchase of the Floating Production Storage and Offloading (FPSO) vessel (Liza Destiny).
“We now expect the gross cost for the development to be approximately US$3.5 billion or 21% below the sanctioned estimate.”
The initial estimate was published by ExxonMobil in 2017, and revised a first time in 2018 by US$700M. Hess’ recent announcement is the second revision, taking the cost down by $200M more. That’s a total reduction of US$900M.
Speaking about this during a press conference at his Church Street office, yesterday, Opposition Leader Bharrat Jagdeo said, “That, in itself should be worrying.”
He acknowledged that the news of such a significant reduction in development costs would strike many as good news.
“I’m glad it came down because that’s less money for us to pay.”
However, Jagdeo said, “If you could make such a [nearly] US$1B error, that is worrying, without oversight from the government.”
Presently, no firm has been hired to audit the billions of dollar in costs that Exxon intends to claim for the Stabroek Block projects. But Liza-1 is already on stream, with the Liza Destiny producing 75,000 barrels per day. The Liza-2 project is estimated to cost US$6.6B, and that will have to be audited too. It is slated to come on stream in 2022.
The only recoverable costs slated to be audited so far are the US$460M pre-contract costs that Exxon has foisted onto the backs of Guyanese taxpayers. Those costs will be audited by UK based firm, IHS Markit.
ExxonMobil is the lead operator on the Stabroek Block, with a 45 percent Stake. Hess holds 30 percent, while CNOOC holds the remaining 25 percent.