‘Guyana is a jewel in Exxon’s crown’ – Routledge

Nov 06, 2023 News

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…says Chevron is attracted to its high profit in Guyana

Kaieteur News – Chevron’s recent acquisition of Hess for US$53 billion has granted the U.S. supermajor access to one of the most promising prospects in the global resources industry – Guyana’s vast offshore oil reserves, as reported by the Financial Times.

The British daily newspaper highlighted in the article that there was little interest in the South American country’s potential as a fossil fuel producer when ExxonMobil began exploring Guyana’s waters for oil in 2008. That changed in 2015 when an Exxon-led consortium, including Hess and Chinese giant CNOOC, made a significant discovery at the Liza field, in the 6.6mn acre Stabroek Block.

It was reported that the consortium has made more than 30 significant discoveries since then, with the latest announced. The steady stream of oil output should help sustain Exxon’s – and now Chevron’s – crude business for decades.

“It should also transform one of Latin America’s poorest nations, home to just 800,000 people. Oil output has gone from zero to 390,000 barrels a day last year. The unusually fast ramp-up could push production to 1.2mn b/d by 2027 – equivalent to about a third of Exxon’s current daily production. Last year Guyana’s economy grew by a record 62.3 per cent, the highest rate in the world, as the petrodollars poured in. The IMF (International Monetary Fund) expects it to expand by another 38 per cent in 2023,” the media entity stated.

All of this is happening in a global context where the world is gradually shifting away from fossil fuels, and environmentalists are vocally opposing further oil and gas development. However, the investments by U.S. oil majors are positioning Guyana as one of the last petro states to emerge in the oil era – Financial Times reported.
Alistair Routledge, Exxon’s Guyana president, told the Financial Times, “It is a jewel in ExxonMobil’s crown. It’s a significant resource. It fits very well with the execution capability of ExxonMobil.”

When asked for his thoughts on Chevron’s takeover of Hess, Routledge emphasized, “Clearly what’s attractive to Chevron is that ExxonMobil is operating at a very high level… From first discovery in 2015 to first oil in 2019. I mean, [it’s] just unheard of really to develop a new resource in a brand new basin with no existing infrastructure in that short a timeframe.”

Moreover, it was stated that Wall Street analysts have hailed the Exxon-led investment in Guyana as “the best oil deal in modern history.” Notably, it boasts a low break-even price of US$25-$35 per barrel, even as global oil prices hover above US$90 per barrel. However, the U.S. supermajor and its Guyana project have faced criticism.

Exxon’s story of success Guyana
Earlier this year, ExxonMobil Corporation’s Chief Executive Officer (CEO) Darren Woods, during a discussion on Tuesday at the annual S&P Global CERAWeek conference held in Houston, Texas, boasted about “the story of success” Guyana. Woods was also proud to highlight the company’s rapid pace of development in the country.

Exxon’s boss and S&P Global Vice Chairman, Daniel Yergin, had a discussion on future investment strategies in the energy sector, when Yergin stated, “So let me ask you, mega projects, you did mention Guyana. I mean that’s pretty incredible how fast that developed.”

To this, Woods responded, “Yes it is…Yeah I mean if you look at that it’s really a story of success, and I would also tell you that we are very focus as we grow that production.”
Exxon’s Guyana is operator and holds 45 percent interest in Guyana’s lucrative Stabroek Block, which is 6.6 million acres and has 11 billion of proven barrels of oil. Hess Guyana Exploration Ltd. Now Chevron holds 30 percent interest and CNOOC Petroleum Guyana Limited holds 25 percent interest.

Speaking about Exxon success in Guyana, Woods shared that the company was able to move from first discovery to first oil within five years, beating industry record. “We brought that like from discovery to first production in five years which is of not industry record is pretty close to it. When you think about what typically the timeframe (is), (it) typically (takes) the industry about 10 years,” Exxon’s CEO said.

He continued: “If you then look at what we have delivered since that timeframe, we are bringing in those ships [Floating production storage and offloading vessels] and that production ahead of schedule, we’ve beaten schedule for the two ships [Liza Destiny and Liza Unity] that we’ve got and the third one [Prosperity] that we are working on, that is expect to beat schedule.”
Woods bragged about EEPGL being able to run production, “at a higher level than we have anticipated when we made those investments and staying focused,” adding that the company is also focused on, “helping reducing emissions.”

Exxon CEO also shared that the company is working on the US$2B Wales gas-to-energy project with the Government of Guyana (GoG) to bring gas onshore. He said, “We got a project that we are working on with the Government of Guyana to bring gas onshore to back out some of their higher emission intensity power to substitute that with gas. So we lower emissions and get better more reliable power to the people that’s a real win-win situation.”

Guyana signed onto a Production Sharing Agreement (PSA) with the oil major, which has been heavily criticised for being lopsided and benefiting the oil company more than the country.
The 2016 deal gives Guyana an industry-low 2% royalty. Presently, Guyana shares revenue with ExxonMobil after the company deducts 75 percent towards the cost incurred to develop the resources in the Stabroek Block.

This arrangement, with the lack of ring-fencing, sees Guyana paying for projects that are yet to commence production activities. Each month bills from future producing developments are added to the list of expenses to be cost recovered by Exxon. After the 75 percent is deducted to pay back the oil company, Guyana then shares 50/50 of the 25 percent remaining with Exxon as profits. This amounts to 12.5 percent of profits from the operations.

Also, under the signed deal, Guyana has agreed to, under the taxation provisions, to pay ExxonMobil’s share of Corporation and Income Tax. As such it would mean, that Guyana foregoes each year, billions of US dollars. On top of this, documentation to this effect is then provided to the US based company allowing it to not have to pay any taxes in its home country for its earnings overseas.

Though Vice President, Bharrat Jagdeo has maintained that the mere 2 percent royalty, massive tax breaks, and the absence of a ring-fencing provision, are three key flaws of the 2016 Stabroek Block PSA, his government will not seek to renegotiate the deal.

Chevron’s Acquisition of Hess
Paul Sankey, the lead analyst at Sankey Research, recently shared his perspective on the acquisition of Hess Corporation by Chevron Corporation during a segment on CNBC’s ‘Squawk on the Street.’ Sankey was queried about his take on this significant deal. He remarked, “Well, we know Guyana is the best asset and global oil. It’s remarkable so Hess was trading as a takeover play? And the question was, can you get a high enough premium for the actually to be a consummated deal?”

This publication reported that under the terms of the agreement, Hess shareholders will receive 1.0250 shares of Chevron for each Hess share, making the total value of the transaction an impressive US$60 billion.

Of particular note, Chevron’s acquisition of Hess provides it with exclusive control over a highly coveted prize—30% of the working interest in Guyana’s Stabroek Block. In this expansive deepwater block spanning 6.6 million acres, ExxonMobil operates with a 45% working interest, while China National Offshore Oil Corporation (CNOOC) holds 25%.

Since the commencement of oil production in December 2019 at the Stabroek Block’s Liza Phase One Project, Exxon has successfully launched another project, Liza Phase Two, in February 2022. Both ventures are contributing approximately 400,000 barrels of oil per day. Exxon and its partners are aiming for over 1.2 million barrels of oil production by 2027, solidifying Guyana’s Stabroek Block as one of the world’s fastest-developing oil hotspots.

Hess’ CEO, John Hess, has repeatedly emphasized that the Stabroek Block boasts five government-approved projects, each capable of generating over US$1 billion in annual profits for the company.
The remarkable profit potential of Guyana’s Stabroek Block hasn’t escaped Chevron’s notice, as reflected in the company’s comments on Monday.

Chevron has labeled the Stabroek Block as “an extraordinary asset with industry-leading cash margins and low carbon intensity, expected to drive production growth into the next decade.” The company also designates Guyana’s Stabroek Block as a priority asset, with over US$11 billion barrels of oil equivalent in discovered recoverable resources, promising high cash margins per barrel, a robust production growth outlook, and potential exploration opportunities.

Additionally, the large oil producer has expressed significant interest in the cash flow that will follow the start-up of Payara, the third oil project expected to commence by year-end, as well as Yellowtail, the fourth oil project scheduled for 2025.

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• Alistair Routledge, Chevron, Exxon, Guyana, jewel

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