Stabroek Block contract allows ExxonMobil to weather storm at Guyana’s expense

Mar 22, 2020 News

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By Kiana Wilburg

Crisis or not, the Stabroek Block Production Sharing Agreement (PSA) will always leave ExxonMobil and its partners with good outcomes all at Guyana’s expense.
And the prevailing trouble in the oil market where ExxonMobil is forced to make budget cuts in the face of the coronavirus is no different.

Any changes it makes to CapEx (Capital Expenditure), it will be done to ensure its Stabroek Block operations, arguably the crown jewel of its portfolio, is preserved. ExxonMobil’s Chief Executive Officer (CEO), Darren Woods, will disclose the details of these cuts soon. In the meantime, ExxonMobil’s partner on the Guyana license, Hess Corporation, is also walking the same line. Earlier last week, Hess’ CEO, John Hess, announced that the company shaved off some US$800M from its budget so that it can preserve its “great investment opportunity in Guyana”. On March 16, 2020, the company also entered into a US$1 billion three-year term loan agreement with JPMorgan Chase Bank, N.A.
It should be noted that any financial maneuverings, done by these two American oil giants for the sake of its Guyana investment, would not result in a loss. This is all thanks to a sweet provision in the 2016 PSA that allows them to recoup all financing costs as well as the interests taken on loans to support its operations. According to the document, “Interests, expenses and related fees incurred on loans raised by the parties comprising the Contractor for petroleum operations and other financing costs provided that such expenses, fees and costs are consistent with market rates” are recoverable by without need for approval by the Minister.

CROWN JEWEL

Both ExxonMobil and Hess have been ecstatic about their investment in Guyana as it has chalked up 16 successful discoveries to date. Particularly Hess Corporation’s Chief Executive Officer (CEO), John Hess, has said that the string of successful discoveries Guyana has seen is “world class” as it works out to about 500 million barrels of oil per discovery.

On numerous occasions, he has praised the Stabroek Block for being very low cost in terms of development while delivering high returns for investors. Speaking specifically to the Liza field, Hess has said that it offers “high financial returns and more rapid cash paybacks since it carries the lowest development costs of all the major global offshore projects.”
Hess Executives have also bragged about the company becoming a free cash flow engine for shareholders by 2022 thanks to its 30 percent stake in Guyana’s Stabroek Block.
Even as Hess and Exxon make budget cuts following the implications of the coronavirus, they are still pursuing a fourth development project on the Stabroek Block while awaiting permission for a third.
ExxonMobil’s fourth development project on the Stabroek Block will roll out at the Hammerhead well and will see the production of 150,000 to 190,000 barrels of heavy oil per day.
This was revealed in project details ExxonMobil’s subsidiary, Esso Exploration and Production Guyana Limited (EEPGL), recently submitted to the Environmental Protection Agency (EPA).
In that document, EEPGL noted that Hammerhead is located in the eastern portion of the Stabroek Block approximately 160km from Georgetown. The project is expected to last for 20 years and will see 26 to 30 wells being drilled to support extraction of the oil from below the seafloor. Each well will be drilled to some 3500 to 5300 metres below sea level.
Kaieteur News understands that EEPGL will install some of the oil production facilities on the sea floor at approximately 800 to 1500 metres water depth. These subsea facilities include various types of pipes and hardware. The subsea facilities allow the oil from the wells to be gathered and moved to the surface of the ocean for further processing.
It was noted that EEPGL will use a Floating Production Storage and Offloading Vessel (FPSO) which will have the capacity to produce up to an average of approximately 4,500,000 to 5,200,000 barrels of crude oil per month. The operator noted that these estimates are preliminary and are subject to change.
In addition, it was noted that approximately every seven to eight days, the oil will be pumped from the FPSO to a conventional tanker which is owned and/or operated by others. The tanker will then bring the oil to buyers.
At peak, EEPGL will utilize approximately 1200 personnel offshore during the stage where wells are being drilled and the offshore oil production facilities are being installed. It was keen to point out that this number will decrease to 200 personnel during the production operations phase. Further to this, a smaller number of personnel will be utilized at the onshore support facilities.

 

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