Purchase of FPSOs to reduce Hess’ low operating cost – CFO

Dec 28, 2024 News

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Kaieteur News- Hess Corporation has disclosed that the purchase of two additional Floating Production, Storage, and Offloading (FPSO) vessels, is a move that will significantly reduce its operating costs in Guyana.

Recently, ExxonMobil Guyana Limited the operator of the Stabroek Block, finalised the purchase of the third FPSO operating in the Stabroek Block, from Dutch-shipbuilder SBM Offshore.

The acquisition of the Prosperity and Destiny FPSOs add to the Liza Unity FPSO that was purchased last year, marking a pivotal step for Hess and the Stabroek Block partners.

According to John Riley, Senior Vice President and Chief Financial Officer of Hess Corporation, the FPSO acquisitions represent a strategic investment. Riley explained, “In the fourth quarter, we are purchasing the Prosperity that’s on Payara, and we are purchasing Destiny, that’s on what we call Liza, phase one. It’s approximately, as we put in the release, US$635 million of capital.”

The purchase of these FPSOs is expected to reduce operating costs even further for Hess Guyana operations, which are already among the most cost-efficient in the industry. Riley stated, “Our Guyana operating costs are already very low, but that will reduce it further, because we won’t have the lease operating costs coming in.”

The company is also looking ahead to 2025 with optimism. Riley noted, “Yellowtail should be leaving the yard and sailing to Guyana in the first quarter. So that should be out. Let’s just call it mid-year-ish into Guyana, with the startup, then later in the year.”

He noted that once the Yellowtail FPSO comes online, it will add 250,000 barrels per day (bpd) of production capacity, bringing Guyana’s total installed production capacity to over 900,000 bpd.

Recently, it was announced, “SBM Offshore and ExxonMobil Guyana Ltd, an affiliate of Exxon Mobil Corporation, have completed the transaction related to the purchase of FPSO Liza Destiny, ahead of the maximum lease term, which would have expired in December 2029. The purchase allows ExxonMobil Guyana to assume ownership of the unit while SBM Offshore will continue to operate and maintain the FPSO up to 2033.”

The transaction comprises a total cash consideration of US$535 million. This will bring the total cost spent to purchase the three FPSOs to just over US$3 billion.

The FPSO Liza Destiny has been on hire since December 2019 and since 2023 has and will continue to be operated through the integrated operations and maintenance model combining SBM Offshore and ExxonMobil’s expertise and experience delivering outstanding operational performance.

In August, this publication reported that EMGL was considering the purchase of the Prosperity and Liza Destiny FPSOs ahead of the end of their maximum lease terms in November 2025 and December 2029, respectively.

Last year, Exxon purchased the Liza Unity from SBM for US$1.3 billion, a few months before the end of its maximum lease term in February 2024. Similarly, on November 7, SBM announced that it had completed the transaction with EMGL in relation to the purchase of the FPSO Prosperity. The purchase involved a total cash consideration of US$1.23 billion.

President of ExxonMobil Guyana, Alistair Routledge, has said that the purchase of the FPSOs is a more cost-effective approach for both the company and Guyana. Routledge made that statement during an interview aired by the “Energy Perspectives” podcast.

When asked about the company’s decision to purchase a second FPSO, Routledge said, “It’s really primarily a financial matter. It’s more financially-efficient for the investors and for the country to purchase the FPSOs at this stage.”

He explained that while early and construction leases can help ensure efficient and high-quality project completion, long-term leases typically involve higher financing costs. “We found that model to be a very effective one, but a long-term lease is generally a more expensive financing option for the country and for the investors than purchasing the FPSOs,” he said. Routledge added that with the vessels already proven to be operating “very well” at this stage, Exxon feels comfortable that it’s the right time to purchase.

Notably, at one of his press conferences, Vice President Dr Bharrat Jagdeo reminded that the money (US$3 billion) that was spent by Exxon to purchase the vessels will be recovered by the oil company from revenues generated from the Stabroek Block. At his November 14, press conference Jagdeo said, “That’s all part of the cost oil, it’s part of cost oil, every cent that goes into or is spent, it goes to cost oil…” the Vice President noted.

Under the 2016 Production Sharing Agreement (PSA) that requires Exxon and its partners Hess and CNOOC to pay no taxes to Guyana, 75% of the revenues generated from the Stabroek Block go to Exxon to cover operational expenses. The remaining 25% is then split between Guyana and the oil companies – out of that share Exxon pays a 2% royalty to Guyana.

(Purchase of FPSOs to reduce Hess’ low operating cost – CFO)

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• FPSO, Hess, John Riley, Stabroek Block

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