Exxon concocts reasons to avoid renegotiating flawed Stabroek Block contract

Aug 18, 2022 News

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– Says “We don’t know what’s coming around the corner; not all wells as sweet as 2015 Liza find”

Kaieteur News – When the former APNU+AFC Government had released the Stabroek Block Production Sharing Agreement (PSA) in December 2017, stakeholders far and wide agreed that the inherent provisions leave the country at risk for significant revenue leakage. The loopholes in that document are so damning in size and number that calls echoed throughout the years for renegotiation; for the government to amend some of those terms that leave the nation in a disadvantageous position.

ExxonMobil Corporation’s affiliate, Esso Exploration and Production Guyana Limited (EEPGL) was tightlipped for the most part; only referencing on occasion that it subscribes to the principle of contract sanctity. Just recently however, EEPGL’s Head, Alistair Routledge went a little further to concoct reasons to justify the company’s position. During a bizarre discourse with social media platform, The Guyanese Critic, Routledge was asked to say if the company would ever consider renegotiating the Stabroek Block contract, even if it was merely to appease Guyanese.  Routledge said, “Look, the business we’re in is we don’t know what’s coming around the corner. It may look great today but I would say we’ve kind of made it look easy so far. There’s a lot of the resource we found that is going to be more difficult to develop. The returns on those won’t be as good as the first. The Liza field we found was the best resource that we found in the Stabroek Block that was where we started.”

The official added, “So far since then, the (other) reservoirs are not as good; now they’re still very good and at high oil prices that we see today it looks fantastic but we know we’re in a commodity business; we know that we’re in a world where we need to be moving in an energy transition and the oil prices are almost certainly going to fall and so it (the agreement) needs to be robust. It needs to be durable for all the parties for it to continue, for us to continue to invest.”

Though Routledge holds the foregoing points, they all appear hallow when compared to the statements made by ExxonMobil’s CEO and Chairman, Darren Woods.

While he asserted that the company does not know what is coming around the corner, Woods painted a different picture during Exxon’s second quarter earnings call. The CEO had said the company’s US$17.9B profit during the reporting period was not a matter of mere luck but prudent management and analysis of the market. When companies were pulling back on spending during the 2020 COVID-19 hit period, Exxon he said remained bullish and continued heavy investments in key assets like Guyana as they knew its low-cost, low emission barrels would be a safe in any market cycle. Woods even noted that Exxon advanced the engineering work and procurement processes for multiple projects and locking in critical contracts for Guyana and other assets because it sees well into future regarding market demand for low cost barrels.

With respect to Routledge’s point that the returns on other wells in Guyana would not be as good as the Liza find, his company’s accelerated approach to develop and have in operation, 10 oil ships in this decade, suggests otherwise.  Even Exxon’s partner in the Stabroek Block, Hess Corporation, has hailed all of Guyana’s discoveries and the developments to come as being “industry leading” and key to it securing a future of multibillion dollar profits.

Hess’ boss, John Hess during his second quarter earnings call had also said the Guyana operations will allow it to have over US$1B in profits yearly. He said this is what they would be making with each ship due to the low breakevens and the demand that will exist for Guyana’s sweet crude. Hess has also declared Guyana as a “phenomenal province” with “excellent returns” to be had well into the next three decades.

But that is not all. Guyana’s oil is so sweet that Exxon and partners are drilling deeper to find more. In fact, Hess had said that the Fangtooth discovery which was announced by ExxonMobil Corporation back in January 2022 holds enough oil deposits to underpin its own Floating, Production, Storage and Offloading (FPSO) vessel. Even though the resource is buried 1800 feet below the sea floor, compared to the usual 1500 feet where the other discoveries have been made, Hess said the oil is worth going after and will therefore fall into the queue of oil wells to be developed. The Stabroek Block partner has also bragged that Guyana is two to three times better than any other energy player in offshore development. Both Hess and Exxon have admitted that Guyana is key to their survival during the energy transition. Despite such importance, calls to close even one fiscal loophole in the 2016 deal have continued to be ignored.

 

 

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