Another Stabroek Block discovery tied to lopsided Exxon deal

Jun 10, 2021 News

Kaieteur News – American oil explorer, ExxonMobil Corporation, disclosed yesterday that it made another discovery, the 20th to be exact, in the Stabroek Block. The latest find was made at the Longtail-3 well which encountered 230 feet (70 meters) of net pay, including newly identified, high quality hydrocarbon bearing reservoirs below the original Longtail-1 discovery.
ExxonMobil noted that the well is located approximately two miles (3.5 kilometers) south of the Longtail-1 well and was drilled in more than 6,100 feet (1860 meters) of water by the Stena DrillMAX. It should be noted that the Longtail-1 well was drilled in 2018, encountering approximately 256 feet (78 meters) of high-quality, oil-bearing sandstone reservoir.
Upon hearing the news of the discovery, Senior Vice President of Exploration and New Ventures at ExxonMobil, Mike Cousins, intimated that combined with its previous recent discovery at the Uaru-2 well, the resource estimate at the Stabroek Block could now go well beyond nine billion barrels of oil equivalent resources.
Cousins was keen to note that the latest discovery will allow the oil giant to continue to leverage its core competitive advantages in its ongoing exploration campaign, thereby delivering substantial value to its partners and shareholders.
It should be noted that ExxonMobil would be able to reap the maximum benefits for its investors from the development of the Longtail-3 discovery, among others, thanks to the loopholes in the Production Sharing Agreement (PSA) covering the Stabroek Block.
Kaieteur News would have exposed via an extensive study published in 2019 that the PSA has some of the world’s worst provisions when compared to 130 other deals. For example, the PSA says the Government of the day must pay the oil giant’s income tax out of the country’s share of the profits from the Stabroek Block projects. However, none of the 130 PSAs examined by Kaieteur News had this type of outlandish arrangement.
Additionally, the Guyana-ExxonMobil PSA is the only one out of 130 contracts, which has no ring-fencing provisions to prevent costs of unsuccessful wells being carried over to that of successful wells. In the absence of these crucial provisions, ExxonMobil can also discount the expenses attached to developing future projects against those that are already producing. In other words, if the oil king decides to start developing the Longtail-3 find today, it can discount those costs against the Liza Phase One Project that is currently in operation. By so doing, it would lessen the profits to be split between Guyana and ExxonMobil.

What is also worse is that the contract contains no sliding scale provision. Such a clause would say that royalty to the country must increase as production improves. Put simply, if ExxonMobil starts producing more barrels of oil than it originally projected, the country’s royalty should increase accordingly.
In the absence of this provision, Guyana will collect a mere two percent royalty irrespective of how well the project does. It should be noted that royalty is only calculated after ExxonMobil takes as much as it desires to cover transportation and operations.

The mindboggling loopholes do not end there. Guyana’s PSA is the only one out of 130 that allows insurance premiums to be fully recovered as well as interest on loans and financing costs that are incurred by the contractors.

The 130 PSAs examined are part of a register on www.resourcecontracts.org. (https://resourcecontracts.org/search?q=Production+Sharing+Agreement+)
That website offers over 620 PSAs from around the world for perusal. The Stabroek Block PSA was signed on June 27, 2016 and was up for renewal four years later (June 27, 2020). ExxonMobil and its partners, Hess Corporation and CNOOC/NEXEN would be required to relinquish 20 percent of the contract area after June 2020.

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