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ExxonM and partners to recover full US$10 billion cost for 4th project in 2024 before operation begins
The Stabroek Block
Kaieteur News – ExxonMobil and its partners, Hess and CNOOC, are set to recover US$12.6B in expenses in 2024, one year ahead of delivering the US$10B Yellowtail project, under the lopsided production sharing agreement (PSA) for the Stabroek Block, situated off the coast of Guyana.
Kaieteur News last week noted that the financial arrangement between ExxonMobil, its partners, and the government of Guyana has led to a significant disparity in projected revenue distribution this year.
In 2024, it is expected that these oil giants will generate around US$14.7B in earnings for them from crude oil production. In contrast, Guyana is projected to receive US$2.1B from its share of the crude, totaling US$16.8B in oil exports. Guyana’s entitlement includes 25 out of 202 projected lifts of crude, amounting to 25 million barrels of crude for the year. Additionally, the country is expected to earn US$320M in royalties, bringing its total earnings from oil production and royalties to about US$2.4B in 2024.
Most of the US$14.7B that Exxon and its partners are earning is categorized as cost oil, representing the recovery of expenses they claim were incurred in exploring and developing the Stabroek Block. ExxonMobil, having received approval for five offshore oil developments in Guyana, with a sixth to be approved soon, has total development expenses for these projects at approximately US$54B.
In 2024, 75% of the crude, amounting to about US$12.6B, is allocated for cost recovery. This is in accordance with the PSA, which allows the oil companies to use 75% of the annual crude production to recover their expenses. The cumulative costs recovered by ExxonMobil by the end of 2023 are projected to have exceeded US$18B.
The US$12.6B expected to be recovered in 2024 exceeds the US$10B development cost of the Yellowtail project, which was approved in 2022 and is projected to start production in 2025. This means ExxonMobil and its partners will effectively recover the Yellowtail project’s development cost before delivering the project.
This situation underscores the danger of the absence of ring-fencing in the Stabroek Block PSA, a crucial financial safeguard in the oil and gas industry. Ring-fencing prevents the mixing of funds from different projects and ensures profits from a specific project are used solely for its associated costs. Without ring-fencing, the development expense of the Yellowtail project can be recovered from ongoing production from Liza-1, Liza-2, and Payara.
Vice President Dr. Bharrat Jagdeo has not pursued ring-fencing provisions in the belief that they might act as a disincentive to investment. Jagdeo accepts that ring-fencing could increase Guyana’s immediate benefits from the Stabroek Block’s wealth, yet prefers to allow the companies to recover their expenses more quickly and extensively.
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