Chevron fighting to get into lucrative Stabroek Block because of ‘sweet’ 2016 oil deal

Chevron fighting to get into lucrative Stabroek Block because of ‘sweet’ 2016 oil deal – VP Jagdeo

Mar 24, 2024 ExxonMobil, News, Oil & Gas

Kaieteur News – The current ‘battle’ between oil giants ExxonMobil Corporation and Chevron Corporation over the Stabroek Block is because of the lucrative Production Sharing Agreement (PSA) Guyana signed onto, Vice President Bharrat Jagdeo said on Thursday at his weekly press conference.

ExxonMobil, the operator of the Stabroek Block, and its block partner CNOOC have both moved to arbitration to assert their rights over Guyana’s golden oil field, the Stabroek Block. This is as a result of Chevron’s US$53 billion takeover of Hess Corporation (the third-partner in the Stabroek Block).

Buying over Hess Corporation would give Chevron access to Hess’ most valuable asset in Guyana. ExxonMobil Guyana holds a 45% interest, while Hess Guyana holds 30% interest and CNOOC Petroleum Guyana Limited with 25% interest. The case was filed at the International Chamber of Commerce in Paris, arguing that Exxon and CNOOC has a right of first refusal over Hess’ stake.

The Vice President was on Thursday asked to comment on the battle between the oil giants over Guyana’s oil block. Jagdeo first highlighted the profitability of the Stabroek Block. He said, “I don’t think Chevron has done this because of the need to know more about reserves. I think they have seen the discoveries; the discoveries keep coming. They know that the reserve will expand in the future.”

He said that the oil block’s current valuation and the anticipation of further discoveries for future earnings is what attracted Chevron. The Vice President even suggested that the US$53 billion price tag Chevron offered Hess was mostly because of the Stabroek Block.

“So, it is something that I believe is driven largely because of the need to diversify their portfolio Chevron, but also to get into a lucrative agreement and this is a lucrative agreement because of that PSA,” Jagdeo said too.

Production from the Stabroek Block developments sits above 600,000 barrels per day (bdp) – with Exxon having the Liza 1, Liza 2 and the Payara projects online. The oil companies have embarked on an aggressive drilling campaign in the Stabroek Block targeting three other developments: Yellowtail, Uaru and Whiptail projects. It should be noted that Yellowtail and Uaru have already been approved, while Whiptail is under review awaiting government approval any day now.

The PSA the Vice President is referring to is one that is heavily criticized for benefitting the oil companies more than it does the country.

Former Minister of Natural Resources, Raphael Trotman, who served under the APNU + AFC Coalition government between 2015 and 2020, was the one who signed the heavily criticized lopsided PSA with Exxon. 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.

Since the deal was made public, there have been many calls by civil society for the administration to bring ExxonMobil Guyana back to the table to carve out a better or more even deal which will garner more benefits for the country.

According to a Bloomberg report, commenting on the dispute with Chevron, CNOOC Board Secretary Xu Yugao, revealed that the company had filed for arbitration on March 15. CNOOC will do whatever it takes to protect the interests of the firm and its shareholders by legal means, he said at a briefing in Hong Kong. “We will uphold the terms of the partners’ agreement to safeguard our shareholders’ interests,” Upstream Online quotes Yugao.

On Monday, Exxon Chief Executive Officer (CEO), Darren Woods told Reuters the company filed for arbitration because discussions were not happening with Chevron and Hess around the right of first refusal provision. “Those discussions needed to happen and hadn’t been happening,” Woods said in a Reuters article. He said Exxon wanted to have its right of first refusal recognized before it could decide on its strategy for the Stabroek block. An Exxon executive has said the arbitration could take five to six months.