ExxonM boasts to shareholders of low payback period on investments as Guyana ignores advice to ring-fence Stabroek Block projects

Jan 14, 2024 ExxonMobil, News, Oil & Gas

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Kaieteur News – United States (U.S.) oil major, ExxonMobil in its Corporate Plan Update recently informed its shareholders that its capital expenditure is expected to be repaid in less than 10 years.

Exxon said last month, “The company now anticipates total annual capital expenditures and exploration expense of $23 billion to $25 billion in 2024 and $22 billion to $27 billion annually from 2025 through 2027, generating an average return of approximately 30%.” It was keen to note, “Greater than 90% of the capex has payback periods less than 10 years.”

The oil company assured its shareholders that its capital allocation approach prioritizes competitively advantaged, high-return, low-cost-of-supply, value-accretive investments that enable ExxonMobil to lead the industry now and through the energy transition.

ExxonMobil is the operator of Guyana’s lucrative Stabroek Block. The company holds a 45% interest, while Hess Guyana Exploration Ltd. holds 30 percent interest and CNOOC Petroleum Guyana Limited holds 25 percent interest.

Already more than 11 billion barrels of oil has been discovered in the Stabroek Block by the consortium. To date, the Government of Guyana (GoG) has sanctioned five projects with three already in operation. A sixth development is presently pending approval.

Each project has an estimated life of 20 years. In normal circumstances, the repayment of a project would commence after oil production starts, however, ExxonMobil Guyana has been shortening Guyana’s share of profits in order to finance projects in the Stabroek Block before they start oil production.

It was reported in July 2023 that ExxonMobil deducted millions of US-dollars in decommissioning costs, to clean up the third and fourth developments in the Stabroek Block, even though these projects were yet to commence oil production.

No ring-fencing

In the absence of a ring-fencing provision, Exxon has been utilizing the revenues generated from the oil producing projects to fund projects that are yet to come on stream as well as its exploration campaign across the Block.

Flagging what he described as “short-sightedness” on the part of the government for failing to ring-fence the Stabroek Block projects, prominent Attorney-at-Law and Chartered Accountant, Christopher Ram said Guyana is haemorrhaging US millions.

Ram last year during a radio appearance on Kaieteur Radio 99.1/ 99.5 FM argued that no competent leader would allow such an abysmal act to continue. A ring-fencing provision would mandate that each oil project pay for itself only. In this manner, once the project has been repaid, Guyana would benefit from 50 percent of the earnings there.  Ram during the radio programme however argued that Guyana has failed to ring-fence the Stabroek Block projects, allowing the currently producing projects to pay for a number of other costs in the Stabroek Block, such as exploration activities for instance.

The lawyer was keen to point out that Guyana not only allows for one project to pay for other costs, but these payments are also unrestricted or unlimited. Ram told listeners, “Now nobody in their right mind, nobody who understands the concept of a production sharing agreement would allow that but our government does, so we lose millions and millions of US-dollars in money that should have come to us, helping Exxon and their friends to explore for oil so that by the time they have to relinquish anything, they have already used up the entire area.”

The lawyer concluded that Guyana is being “conned” by the multinational oil corporation.  According to the lopsided PSA Guyana signed with ExxonMobil, Hess and CNOOC, the Contractor can deduct up to 75 percent of the revenues generated each month towards the recovery of cost while the remaining proceeds are split as profits equally with Guyana.

The government’s position is that the projects will not be ring-fenced so as to ensure investment continues in the Stabroek Block to fast track production.

Vice President Bharrat Jagdeo had explained to reporters during a press conference: “We admitted that we are foregoing revenue now in exchange for massive future income because it’s going into new projects that will increase production, and so even with the same share of the 50/50, plus the two percent royalty that the future income, because of the bigger scale will be massive in Guyana’s case and we are deliberately foregoing that in this period for that purpose and then trying to grab this bone now could cause you to lose all the bones, the bigger bones too in the future.”

Jagdeo continued, “If there is no ring-fencing, therefore it would take a bit longer to get revenue, so it comes back in the end, more revenue but it comes from a larger production so the revenue increases dramatically if the money that would have come in earlier gets re-invested…because if you end at one project and you ring-fence and you collect and there is no new investment well then you will not get any additional resources in the future.”

Guyana has been repeatedly advised by independent international experts to ring-fence its oil projects to ensure the country benefits from its resources early on, as this would help to improve the nation’s education, infrastructure and health services among others. This is particularly important for Guyana, a new-comer to the sector, as the world transitions to cleaner sources of energy, causing a decline in oil prices.

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• ExxonMobil, Investments, payback, ring-fencing, shareholders

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