“Superefficient” oil agreement with Guyana allows for quick recovery of over US$9B Yellowtail Project – Hess tells shareholders

Oct 28, 2021 News

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By Kiana Wilburg

Kaieteur News – Even as ExxonMobil and its partners await government approval before going ahead with a final investment decision on the Yellowtail Project, the high estimated costs already has its shareholders concerned about the impact of inflationary pressures on the project. This specific concern was raised during the 2021 third quarter earnings call for Hess Corporation which has a 30 percent stake in the Stabroek Block.

During the earnings call yesterday morning, Executives of Hess Corporation field several questions about the massive Yellowtail Project which its partner, ExxonMobil, has said will cost over US$9B ($1.8 trillion).
Arun Jayaram, a Research Analyst at one of America’s largest investment management firms, JP Morgan Securities LLC sought clarity during the call regarding the effects of inflationary pressures on future phases of the Yellowtail Project. He noted for example that one of the key subsea providers for the Stabroek Block partners recently noted that they expect future work for Yellowtail could be in the range of US$500 million to US$1 billion and may even go a little bit over US$1 billion for the development of Uaru, another significant find in the Stabroek Block.
Hess Corporation’s Chief Operating Officer (COO), Greg Hill acknowledged that there is inflation going on in the market but stressed that there are some important facts one ought to bear in mind. Hill said, “…ExxonMobil is doing an extraordinary job I think of utilising this ‘design one, build many strategy’, to deliver efficiencies.

Now, on the Yellowtail, we still don’t have the final numbers. So, once that project is sanctioned, we’ll give the market colour on what the costs are.”
He added, “But I do think it’s important to remember the nature of the PSC (Production Sharing Agreement) though…By the time you get the Yellowtail, the efficiency of the PSC is so rapid that any cost increases rapidly get recovered. So, the impact on overall project return is not very much at all, right, because of that superefficient PSC.”
Adding to the comments proffered by Hill was the Chief Executive Officer of the company, John Hess. He too noted that the development costs for Yellowtail are significantly high. Be that as it may, Hess said, “I think everybody needs to realise that this FPSO (Floating, Production, Storage and Offloading vessel for Yellowtail) is going to have capacity (to produce) approximately 250,000 barrels of oil per day on a gross basis. It will be our largest oil development to date in Guyana.”
The CEO added, “And while its cost will be higher, the resource we are developing is significantly higher. And this development has simply outstanding financial returns, some of the best in the industry, as Greg mentioned, and a breakeven cost between US$25 and US$32 per barrel Brent…”
TRILLION DOLLAR PROJECT
It was on Sunday, Kaieteur News reported that development costs for the Yellowtail project are poised to exceed US$9B or GY$1.8 trillion.
Exxon said the costs are expected to be higher since there would be a greater number of development wells and associated drilling costs when compared to its Payara project which will also cost Guyana $1.8 trillion.
Despite the astronomical costs, Exxon believes that the project should be supported as it would generate benefits for the citizens of Guyana in several ways, which would otherwise not be there in the absence of the project. It said these benefits include revenue sharing with the Government of Guyana. The oil giant stressed however, that the type and extent of the benefits associated with revenue sharing will depend on how decision-makers in government decide to prioritise and allocate funding for future programmes, which is unknown to the company and outside the scope of the EIA.
Apart from the revenue sharing, Exxon said Guyanese stand to benefit from the procurement process that will follow for goods and services from local businesses in alignment with the Petroleum Agreement and the EEPGL Local Content Plan approved by the Ministry of Natural Resources in June 2021.
According to project documents, Yellowtail will consist of drilling approximately 41 to 67 development wells (including production, water injection, and gas re-injection wells); installation and operation of Subsea, Umbilicals, Risers, and Flowlines equipment; installation and the operation of a Floating Production Storage and Offloading (FPSO) vessel in the eastern half of the Stabroek Block; and— ultimately—project decommissioning.
The FPSO will be designed to produce up to 250,000 barrels of oil per day. The initial production is expected to begin by the end of 2025-early 2026, with operations continuing for at least 20 years.
The project is expected to employ up to 540 persons during development well drilling, approximately 600 persons at the peak of the installation stage, and 100 to 140 persons during production operations.

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