…Wood Mackenzie report states

By Lisa Hamilton

PROJECT delays offshore Guyana, in the Stabroek Block, could cost ExxonMobil and the Government of Guyana billions of dollars and push back the payout period by years.

However, this is dependent on the length of the delay as well as the average price of oil over the period. This information comes from Wood Mackenzie in its updated report on the ‘Guyana Fiscal Benchmarking Study’. The information was presented in a webinar, in collaboration with OilNow, on Wednesday, by Director of Upstream Consulting, Juan Agudelo and Vice President of Upstream Consulting, Michael Steinhacker, both from Wood Mackenzie.

In June, the Guyana Chronicle had reported that due to the COVID-19 pandemic and pending governmental and regulatory approval, advancements on ExxonMobil’s third and fourth development projects have stalled. These include the Third Development, the Payara Development Project which has outstanding approval for its Environmental Impact Assessment (EIA) and Field Development Plan; and the Fourth, the Hammerhead Development Project, for which ExxonMobil has paused its provision of the required EIA. The report states that a three-year delay to first oil for Phase 3 to Phase 6 could decrease overall project value for the contractor by US$2.2B or 23.7 per cent. As a result, the payout period would be pushed from 11 to 13 years.

Meanwhile, a delay for the Phases for the same period of time could erode up to US$4.5B of the State’s share value. These figures are subject to oil prices being steady at around US$40 per barrel (bbl). On the other hand, Wood Mackenzie estimates that a delay to Phase 3-6 for just one year, could cost the contractor US$900M and the State approximately US$1.6B, against the same average oil price of US$40bbl.

“The Stabroek consortium needs to get a permit approved by the government and that’s ongoing, as we understand it, for Phase 3. There’s a delay in getting the permit and the longer that goes on it has impact on both contractor and government revenue,” Steinhacker said.

Back in June, ExxonMobil’s Senior Director of Public and Government Affairs, Deedra Moe had explained: “The EIA and field development plan for Payara are awaiting government and regulatory approvals. We are working closely with the government to address all questions as we did for Liza Phase 1 and 2. Of course, some related 2020 activities are now being deferred, creating a potential impact to targeted startup timing. Given the COVID-19 social distancing protocols, we paused our Hammerhead Environmental Impact Assessment activities. We are continuing to assess options for the fourth project on the Stabroek Block. The Hammerhead development is one of several opportunities that are being assessed.”

Meanwhile, the value of the Stabroek Block is also sensitive to Brent price fluctuations. If there is a future Brent price change from US$40 to US$50, the overall project value at the Stabroek Block would increase by 70 per cent while the State share would be maintained at between 50 to 60 per cent.

“The payout period that is 11 years could be reduced to 10 years if higher prices are achieved,” Agudelo said. The Stabroek Block still has 75 per cent of its expected resource to be developed. Phase 1 and 2 of the Liza Field accounts for 25 per cent; Phase 3 of the Payara Field, the Pacora Field and the Liza Deep Field account for 16 per cent while the future Phases of 4-6 account for 59 per cent.

Apart from the concerns of delays, Steinhacker highlighted that, despite the COVID-19 challenges, he finds it impressive that ExxonMobil and its partners are still forging ahead with operations at the Stabroek Block to some extent. “As you see right now, COVID-19 has caused a drop in oil price so operators are not only shutting in oil, they are delaying exploration activities and also development activity. In the case of Liza, as we understand it, ExxonMobil is still looking to proceed with the project and that’s an anomaly, I would say. It just reflects how good the project is,” he said. Indeed, Guyana lifted its second million-barrel of crude in May 2020 and is expected to lift its third early next month.