When one considers the low breakeven cost of the Yellowtail project despite projected inflationary pressures, it still emerges as “one of the best projects on the planet,” says Hess Corporation’s Chief Operating Officer (COO), Greg Hill. He made this comment, during the company’s 2021 third quarter earnings call on Wednesday.
In response to questions from JP Morgan’s Representative, Arun Jayaram on the inflationary pressures that would drive development costs beyond US$9B, Hill was keen to remind that the project has not been sanctioned and therefore the final numbers are not in as yet. Be that as it may, the COO said it is important for one to remember the nature of the Stabroek Block Production Sharing Contract (PSC) which allows for rapid recovery of costs.
Taking this into consideration, Hill said, “…the impact on overall project return is not very much at all, right, because of that superefficient PSC. And the breakevens for Yellowtail, we project even with some cost increases, we’ll be firmly in the US$25-to-US$32-barrel range. So, it is one of the best projects on the planet, even with some potential cost increases. It is a great project.”
Adding to Hill’s commentary, Chief Executive Officer (CEO), John Hess said one ought to bear in mind that the FPSO for the Yellowtail Project is going to have a capacity for approximately 250,000 barrels of oil per day on a gross basis. “It will therefore be our largest oil development to date in Guyana. And while its cost will be higher, the resource we are developing is significantly higher. And this development has simply outstanding financial returns, some of the best in the industry, as Greg mentioned, and a breakeven cost between US$25 and US$32 per barrel Brent,” expressed the Hess boss.
Yellowtail will develop largest resource base to date, Pinktail and Whiptail could be 6th project
He added, “So, it’s outstanding economics…The costs are higher, but the resource we’re recovering is much higher, and these are some of the best economics in the industry.”
OilNOW recently reported that the Yellowtail project will cost GY$1.8 trillion (US$9 billion). This was noted in the project’s Environmental Impact Assessment (EIA). Exxon was keen to note that the project costs are anticipated to increase given the higher numbers of development wells and associated drilling costs when compared to its Payara project which carries a similar price tag.
As a result of this level of investment, the company said the project will generate benefits for the citizens of Guyana in several ways, including through revenue sharing with the Government of Guyana, as detailed in the Petroleum Agreement. Exxon said the type and extent of benefits associated with revenue sharing will depend on how decision-makers in government decide to prioritize and allocate funding for future programmes.