Despite posting a loss for the second consecutive quarter, ExxonMobil yesterday announced it is maintaining its capital expenditure here but wants a quick approval of its third well, Payara, while warning that delays could cost Guyana significantly.
With the country in the throes of an elections crisis, the requisite approvals are unlikely to materialise for the Payara well until a new government is in place.
The longer the permits take to be approved, according to company president Neil Chapman, this country stands to lose.
“We are looking hard at the priorities. Guyana we will continue to fund and you are well aware Liza-2 is in construction, I am confident we will move on Payara as well,” the ExxonMobil President yesterday told the company’s second quarter earnings call conference.
While Guyana will see sustained funding for projects here, the company’s capital expenditure (capex) cut will be felt in other regions as Chapman said that ExxonMobil will continue to reduce the amount of rigs it has in the North American Permian Basin. He said that in the Permian during the second half of this year the company had about 30 rigs but he would now “anticipate 10 to 15”, as it looks at its short term managing of its capital planning.
“What we are doing is we are concentrating our developments in that core activity,” he said.
The US oil major registered losses of some US$1.1 billion during the second quarter. This was the second consecutive quarterly loss for the first time in 36 years, amid “global oversupply and COVID-related demand impacts.”
“The global pandemic and oversupply conditions significantly impacted our second quarter financial results with lower prices, margins, and sales volumes,” a statement from the company’s Chief Executive Officer Darren Woods said.
Despite the losses, the company’s president said that ExxonMobil is ready to move ahead here as soon as it gets the Payara approval but he cautioned that the longer the wait, the more this country stands to lose.
“It is very simple, everything we and the partners can do to progress Payara on schedule, we are doing and we have done. I have said to our organization many times, we need to be ready to move when the government is ready and we are ready. We are ready to FID (Final Investment Decision) this project but we need an approved development plan and that approved development plan needs to come from the government,” he explained. Chapman was responding to the Bank of America’s Doug Leggate on what he was “signalling” in terms of the risk or the potential for delay of the Payara project.
“Of course we are waiting for a resolution like everybody else of the election and I think you are very familiar with what happened down there. There was a vote there was a recount and then there was a series of legal actions…(what) we know is that all parties in Guyana want to progress this development. Of course we are in regular contact with President (David) Granger and the APNU+AFC coalition and we are also in discussion with the PPP and (Bharrat) Jagdeo and Irfaan Ali. What we continue to stress to the government is that if the project gets delayed, it is a loss of value to the country and they understand that. It is very, very clear. The government understands, the ministry of energy understands,” he added.
Signature
In May of this year, Director of the Department of Energy Dr. Mark Bynoe had said that the delay in the approval process for Exxon’s third well project is due both to unresolved issues surrounding its development plan and Guyana’s current political crisis.
“I think that it is well known that assessing and approving of Field Development Plans (FDPs) do require the signature of the minister. I could not expose my minister at this time to a process that is incomplete,” he had said.
“What I have said and what I am doing is that we are providing EEPGL [Esso Exploration and Production Guyana Limited] with line and sight in terms of what are some of the issues that are emerging. Those issues will need to be addressed before one can discuss an approval on what we do concerning the FDP process. So, in large measure, we have provided them a list of matters that have to be addressed before we can consider further the issue of the Payara potential or possible approval. So that is not just a case of politics,” he added.
Bynoe’s reaction had come after Exxon had the week before said that its forecast production of 750,000 barrels per day (BPD) by 2025 would be delayed by about six months to a year. The company had attributed the delay to approvals for the Payara development plan, which it said had been delayed because of the political atmosphere, coupled with COVID-19 restrictions for crew change that had ultimately slowed down drilling.
“Unfortunately, the ongoing election process and uncertainty around the next administration has slowed government approvals of the Payara development plan. In addition, the challenge of rotating crews due to the impact of COVID-19 has temporarily slowed our drilling campaign. As a result, we expect a delay in our future developments of roughly six to 12 months, pushing our production objective of more than 750,000 barrels per day into 2026,” Woods had told the first quarter earnings call.
And along with developmental setbacks, Chapman reasoned, other factors should be taken into the matrix since weather conditions are also critical when planning for offshore works.
“It is important we get this development plan so we can FID in the September timeframe. There are weather conditions, if you miss a certain window, it can result in delay of some months. And that is what we are trying to work towards,” he said.
But Chapman remains confident that there would soon be a resolution to the situation. “I am confident this will get resolved but we need that approval of (the) development plan,” he said.
And like its partner, Hess which announced this week that two additional high quality reservoirs have been identified near the Yellowtail field, Chapman said that it speaks of the investment potential this country’s oil basin offers.
As the company plans for the future and has already drafted short, medium and long term plans, its Board of Directors will meet in November and the company would then have “that clarity on what that capital spend will be next year”, Chapman said.
Jan Mangal, former Petroleum Adviser to the President, said in January this year that the Payara oil well development should not be approved until ExxonMobil yields big changes to the much-criticised 2016 Production Sharing Agreement (PSA) including a higher royalty rate than the current 2%.
Mangal said that while the company has been adamant that changes cannot be made to the PSA, the fact that the Environmental Protection Agency (EPA) has been able to secure unlimited liability insurance coverage for accidents and spills and ensure it has unfettered access to offshore operations, is demonstrative that the company will give in to what it wants.
“We are seeing EPA announce small wins because those are easy. Exxon hasn’t given up much, and that is Exxon gave what it wanted. These small wins, these are easy things for Exxon. We know that we are making progress when we can get the big wins; the increased royalty, a new contract that doesn’t have a stability clause…a generally fairer contract overall,” Mangal told the Sunday Stabroek.
“To get those big wins, we need to get Exxon and partners to the renegotiation table and we have to play hardball. We should not have approved Liza-2 and we should not now approve Payara. We are giving in to Exxon too easily. If we wait, say even in another five years’ time, it will be very difficult, far more difficult to renegotiate,” he added.
ExxonMobil has made 16 discoveries since May 2015 and has estimated its project here to last for at least 40 years. The company is still to develop some 14 other wells in the 0.6 million acres (26,800 square kilometers) Stabroek Block area, which holds a combined total of over approximately 8B barrels of oil equivalent.
In addition, it continues with exploration in the Stabroek Block and plans to also start works in the Canje and Kaieteur blocks where it is the operator and partner with other companies.
