Exxon paid almost half of what Guyana earned in 2022 to rent oil ships

Jul 14, 2023 ExxonMobil, News, Oil & Gas

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Kaieteur News – Esso Exploration and Production Guyana Limited (EEPGL), the operator of the Stabroek Block and subsidiary of American oil giant, ExxonMobil in 2022 recovered a total of US$7.4 billion in costs to develop the crude discovered in the Stabroek Block.

A whopping US$558.8 million alone was expended on the rental of the Floating Production Storage and Offloading (FPSO) vessels and drill ships among other equipment to support the offshore activities. This accounts for almost half of the total revenue Guyana earned last year for the petroleum production activities. During 2022, the country benefitted from US$1.4B from the revenue generated in the Stabroek Block.

This information is contained in the recently released 2022 Annual Report by EEPGL- ExxonMobil Guyana.

According to the document seen by this newspaper, the lease cost last year amounted to a total of $111,761,974,019 or approximately US$558.8M.

The financial statement disaggregated the amount, indicating that $89,821,181,301 was allocated to depreciation and amortization fees for the use of the vessels, while the balance of $21,940,792,718 was specifically due on lease interest or the rental fees.

Guyana currently has two FPSO’s operating in the Stabroek Block namely the Liza Destiny and Liza Unity that started producing oil in 2019 and 2022 respectively. The third FPSO, Prosperity is expected to start production activities later this year. It is likely that this will also further balloon the lease costs being charged to Guyana.

ExxonMobil in its financial statements have indicated that in 2021, the total expense for lease charges amounted to just over $41 billion. If one considers the approximate $112 billion charges in 2022, it would mean that the expense increased by a whopping $71B.

Kaieteur News understands that SBM, the Dutch ship builder based in Netherlands was contracted to operate the leased Liza Destiny (FPSO) for a period of 10 years, while the Liza Unity (FPSO) and Prosperity (FPSO) contracts cover a maximum period of lease and operate of two years, within which the FPSO ownership and operation will transfer to the client, ExxonMobil’s affiliate, EEPGL. Both ships were built by the world renowned shipbuilder.

The Liza Destiny was built to the tune of US$1B while its sister, the Liza Unity was built for US$1.2B. Both vessels operate within the Liza field and produce approximately 400,000 barrels of oil per day.

Just last month, it was reported that ExxonMobil Guyana’s Vice President and Business Service Manager, Phillip Rietema confirmed that the company is progressing with plans to purchase the Liza Destiny and Liza Unity FPSOs.

In its 2019 annual report, SBM had indicated it would recover the full cost of its investments on the two vessels, through a sale to the client, ExxonMobil. In the meantime, significant interests are being paid to support leasing and operating arrangements.

Drill ship rentals

It must be noted that Guyana is also paying hundreds of thousands of US-dollars daily to rent the drill ships being used by Exxon in its exploration campaign offshore. A United Kingdom firm, Noble Corporation was hired to lease the vessels to Guyana.

Notably, in May last, Noble announced ExxonMobil Guyana has extended their contract for the rental of four of their drill ships at an average day rate of about US$420,000 (GYD$84 million) for each. With the new extension by Exxon, drill ships Noble Sam Croft, Noble Don Taylor, Noble Tom Madden, and Noble Bob Douglas will work in Guyana until second quarter of 2027.

Noble Corporation earned significantly from Guyana last year. It was reported that the drilling company generated some US$1.4 billion in total revenues for the year ended December 31, 2022, with a plurality of the revenue coming from its operations in Guyana – US$469 million.

A new report from Wood Mackenzie, a global research and consultancy group, has however signaled that the daily rental fees are likely to increase to $100 million. According to the report, rig utilization has returned to pre-COVID levels, driving rates up by 40 percent in the past year, with an expected increase of 18 percent.

Wood MacKenzie anticipates before the end of the year, rates of US$500,000/day or above may return for highly-prized, advantaged ultra-deepwater rigs. Benign ultra-deepwater rigs have averaged US$420,000/day in the first half of 2023, with utilization at 90 percent.

ExxonMobil just last week received a green light from the Environmental Protection Agency (EPA) to commence another 35-well drilling campaign in the Stabroek Block.

This means that the rental fees will significantly increase as the new drilling programme is scheduled to commence in the third quarter of this year and conclude by the fourth quarter of 2028.

It must be noted that the Production Sharing Agreement (PSA) Guyana inked with ExxonMobil and its partners allow the consortium to recover 75 percent of the revenue each month towards cost recovery while the remaining 25 percent is then shared equally between the two sides as profit.

In the absence of a ring-fencing provision, the oil giant has commenced recovering costs from projects that are yet to commence oil production, thereby shortening the profits in a given month to be divided with government.

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• drill, lease, oil, rental, revenue

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