Exxon confident it has rights to Hess 30% shares in Stabroek Block

Mar 25, 2024 News

– says it wrote the contract for project, knows its provisions

Kaieteur News – American oil giant, ExxonMobil Corporation is convinced that its interpretation of intent in an oil contract signed with Guyana in 2016 will prevail in a landmark arbitration case against Chevron Corporation – Bloomberg reported.

Exxon’s Guyana subsidiary is the operator of the Stabroek Block and owns a 45% interest in the block. ExxonMobil, and its Chinese block partner CNOOC who have a 25% interest in the block, have both moved to arbitration to assert their rights over Guyana’s golden oil-field.

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 – a 30% interest in the Stabroek Block.

On Friday, Exxon’s Senior Vice President Jack Williams stated that the company has a ‘strong feeling’ that they are right about the interpretation of the oil contract. He noted too that Chevron also have strong feelings that they are right as well – to this end, he stated that it will be an interesting arbitration. Chevron is contending that joint ventures are quite common in the oil and gas industry, noting that the first refusal provision does not apply to its transaction with Hess. “But we did write it, so we have a view of what was intended,” Williams underscored. Exxon is focused on the arbitration case in the International Chamber of Commerce in Paris, Williams said.

Guyana’s Stabroek Block is expected to yield as much as 1.2 million barrels per day by 2027. 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 heavily criticised Production Sharing Agreement (PSA) with Exxon was signed in 2016 under the previous administration.

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.

Chevron, CNOOC, Exxon, Guyana, Hess

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