AFTER nearly 25 years and $1.3 trillion invested in Guyana, Esso Exploration & Production Guyana Ltd. (EEPGL), ExxonMobil’s local subsidiary, reported its first profit from oil and gas activities in Guyana.
Meanwhile, Guyana has already been receiving revenues and royalties over the last few years due to this massive flood of investment in exploration and development: $3 trillion in total from the three production companies operating in the Stabroek block. This is a significant milestone for both the company and the country.
It is also a great example of how capital-intensive oil and gas development can be, particularly at the beginning of exploration and discovery activities. Companies invest huge sums up front in oil and gas exploration and often do not begin to make profits until years into production. Companies take on significant additional risk by pursuing activity in a region that has no history of oil or gas discoveries.
If oil and gas had never been found in Guyana, ExxonMobil and its partners would never have been able to recoup their original investments, nor look forward to long-term profits from the activity. Furthermore, by farming out investment and risk, Guyana takes on no risk of its own, while only experiencing the benefits of oil discovery.
Without external investment provided by production companies, Guyana would not have been able to experience the windfall it is now receiving. Consider that Guyana’s pre-oil gross domestic product was roughly US$4 billion, while the Payara project alone cost US$9 billion to develop—developing this resource domestically would have been essentially impossible, to say nothing of the vast technical expertise required for deepwater drilling.
While some have criticised the production sharing agreement (PSA) for having “unfair” terms, the very same PSA has enabled Guyana to experience hundreds of millions of dollars in revenues and royalties without spending taxpayers’ money or borrowing.
This kind of agreement between countries and business partners is common around the world since it allows countries to share in profits while companies take on the risk. Those companies are entitled to recover those investments if oil discoveries are made through cost recovery while the government continues to receive royalties and profits.
Since 1999, ExxonMobil, along with other production companies, has fronted billions of dollars for exploration, discovery and the development of the then-unexplored basin off the coast of Guyana. Since first oil in 2019, twenty years after ExxonMobil’s exploration kicked off, Guyana has raked in hundreds of millions of dollars, allowing the government, for the first time ever, to include US$600 million from the Natural Resources Fund (NRF) in the 2022 budget. The government is expecting to take in another US $1 billion this year from oil.
Guyana’s PSA has allowed the country to be highly involved in oil and gas development without taking on any of the financial risk associated with the process. With this PSA, Guyana has avoided taking on any debt from international lending institutions or other governments that would have been otherwise necessary to develop their own natural resources.
As production grows and international oil prices remain elevated, the government will continue to receive even larger sums that it can save in the NRF and later distribute for spending on infrastructural projects, social programmes and future budgets.
In late April, Guyana received over US$100 million from its most recent oil lift, with oil going for US$106 per barrel. As global demand remains elevated and prices inch even higher, Guyana should stand to benefit from high prices and continued production. The Liza Destiny floating production storage and offloading (FPSO) vessel has already been ramped up to produce 140,000 barrels per day (bpd), while the recently online Liza Unity is already on its way to reaching its projected capacity of 220,000 bpd by the end of 2022.
A third ongoing project, Payara, is also expected to reach production of 220,000 bpd bringing Guyana’s total production to more than 500,000 barrels per day within just the next few years.
The Stabroek consortium expects production in Guyana to reach one million bpd by the end of the decade, not including future discoveries. Already in 2022, ExxonMobil has announced new discoveries that could mean even more projects ahead.
It is important to remember that none of this would have been possible without the initial up-front investment that ExxonMobil and other production companies risked exploring a new area and beginning production. Guyana’s PSA has also supported a fair production sharing model that allows all stakeholders to win out.