Hess Corporation’s investment in Guyana’s offshore Stabroek Block has resulted in the company emerging as the best-performing US oil firm this year and, along with its partners, it is poised to reap US$22 billion ($4.5 trillion) in profits from its initial two projects here, the Wall Street Journal (WSJ) reported yesterday.
“Hess Corp. has emerged as the best-performing U.S. oil company this year. The reasons have little to do with the American fracking boom. Instead, Hess’s popularity with investors is rooted in a small South American nation,” the report said.
“The New York-based company holds a 30% stake in an immense offshore oil field being developed by ExxonMobil Corp. in Guyana that appears poised to become one of the most lucrative megaprojects in years. The company’s shares have surged more than 50% in 2019, the biggest increase of any major U.S. oil operator, excluding companies acquired in deals,” the article added.
ExxonMobil’s affiliate, Esso Exploration and Production Guyana Limited, is the operator and holds 45 per cent interest in the 6.6 million acres (26,800 square kilometers) Stabroek Block, while Hess Guyana Exploration Ltd holds 30 per cent interest and CNOOC Petroleum Guyana Limited, a wholly-owned subsidiary of China state-owned company, CNOOC Limited, holds 25 per cent interest.
Hess’ investment here, according to the WSJ, has seen investors buy shares in the company as a proxy bet on the future and it also helped the company fend off a takeover challenge.
“Some investors see buying shares in Hess as a proxy bet on the future of Guyana’s oil industry. Support for Hess’s Guyana prospects helped the company fend off a serious challenge in late 2017 and 2018 by activist hedge fund Elliott Management Corp. The two parties avoided a fight after Mr. Hess agreed to buy back $1 billion in shares,” the article stated.
“Shareholder excitement over Guyana was a key factor in helping Mr. Hess remain at the company he has run for more than two decades, according to more than a dozen investors The Wall Street Journal spoke with at the time,” the article added.
With first oil from the Liza-1 project in the Stabroek Block expected next year, ExxonMobil, in May this year, announced that it has funded its Liza Phase 2 development project offshore Guyana and it is expected to cost US$6 billion and produce up to 220,000 barrels of oil per day, with startup expected in mid-2022.
The company said Liza Phase 2 will further capitalise on the significant development potential of the Stabroek Block, where it estimates producing more than 750,000 barrels of oil per day by 2025.
The Wall Street Journal report highlighted the large sums expected to be generated from the two projects alone.
“The initial two projects—Liza 1 and Liza 2—are expected to generate about $22 billion in excess cash for the companies after tax, according to analytics firm GlobalData, thanks in part to generous royalty terms the producers struck with the government,” the report said. It observed that “Some critics have said the terms are too generous, and have argued that Guyana should renegotiate them.”
The David Granger-led APNU+AFC government has said it would not renegotiate the contract.
