While Guyanese authorities are criticised for the “generous” fiscal terms in the Stabroek Block Production Sharing Agreement (PSA), those very terms are being recognised for unlocking what is now the most low-cost, high-return resource base of the decade. Speaking at the Bank of America Securities 2022 Global Energy Conference, Chief Executive Officer of Hess Corporation, John Hess indicated that the scale of the resource is not only enormous, but the pace of development is efficient, much to the credit of operator and ExxonMobil affiliate, Esso Exploration and Production Guyana Limited (EEPGL). He added that the economics of the contract allows for the recovery of exploration costs before the corresponding production phase kicks in, which is favourable to both the investors and the government.
“The Production Sharing Agreements were created in 1998 as oil prices were going down to US$40 a barrel in that downturn cycle,” Hess said. “The document, as configured in those times, allowed the investor to get more barrels as prices went down and get less as prices went up. So, your revenue is fixed in any given year to go against your cost bank. As the costs get covered, the investor gets more money and so too does the country.”
He sees PSAs, in general, as offering a better risk-sharing agreement for mega investments, having served Guyana well in this regard. He said each one of the Stabroek Block project investments is between US$6 billion and US$10 billion, inclusive of drilling and subsea infrastructure costs, as well as floating production, storage, and offloading (FPSO) vessels.
Hess, which holds a 30% share in the block, said Exxon has done an exceptional job bringing these projects online ahead of schedule and under budget. He believes that the the PSA was instrumental in this process.
Hess said the agreement offers “a very tax efficient and cash efficient way for you to recoup your investment and actually then makes it incentivised to, as you find more resources, you develop more reserves in an industry-leading fashion.”
The Stabroek Block Co-venturers are producing about 360,000 barrels a day from the Liza Destiny and Liza Unity FPSOs. The third ship, Prosperity, is on track for next year, while the fourth, ONE GUYANA comes online in 2025.
The partners are currently engaging the Guyana government for permission to move ahead with a fifth project (Uaru), which will produce about 250,000 bpd in 2026. The production rate will be similar to the ONE GUYANA FPSO, which will operate at the Yellowtail/Redtail fields. Hess said too that the partners already have visibility for the sixth ship, all of which will allow Guyana to produce over 1.2 million barrels of oil per day by 2027.