Booming Guyana sets offshore oil auction under revamped fiscal terms

Neil Marks; Gary McWilliams; Muralikumar Anantharaman

Reuters 14 November.

Nov 3 (Reuters)

Guyana, one of the world’s hottest oil drilling zones, will offer 14 offshore exploration blocks under terms that “significantly” increase its share of oil revenue.

Officials approved an oil lease auction with timing details to be disclosed by the Ministry of Natural Resources. The auction will include three deepwater and 11 shallow-water exploration blocks, Vice President Bharrat Jagdeo said .

A new profit-sharing agreement that will cover future oil production agreements is under development and will be finalized before the auction ends. It will include a 50/50 split of oil profits and tack on a 10% royalty rate and a 10% corporate tax rate.

Contract terms “shift significantly” the revenue split, with Guyana receiving a “greater share of the proceeds” compared to the existing Production Sharing Agreement terms but they should accelerate the oil boom by bringing in new producers.

A group led by Exxon Mobil (XOM.N) that includes Hess Corp (HES.N) and China’s CNOOC Ltd (0883.HK) discovered 11 billion barrels of recoverable oil in a 6.6 million acre (26,800 sq km) block off the coast. That agreement r provides the petrostate of 800,000 people, with about 15% of oil revenues including a 2% royalty rate.

Oil producers can bid for as many blocks as they wish but no more than three blocks will be awarded to any one company. Each bid must include a development plan that will be considered along with the financial bid.

Winning bidders must pay a $10 million signing bonus for shallow water blocks and twice that for deepwater awards and will be required to put up a guarantee of at least 20% of the work development plan.

First Auction of 14 oil blocks
Nov 04, 2022Vice President, Bharrat Jagdeo announced an auction 14 oil blocks in the first exercise since finding oil. The auction will last for five months.

President Jagdeo told media that Petroleum Agreements for these blocks will also feature new fiscal terms. These include:

• • • • • • • a 10 percent royalty,
            • 50/50 sharing of profit oil and a
            • 10 percent Corporation Tax.

These terms, among others, were decided following work with several consultants. IHS Markit, a leading information services provider based in the UK is taking the lead on guiding the Government on the auction.

“We decided to auction 14 blocks and these would range from about 1000 square kilometres to 3000 square kilometers with the majority being close to 2000 square kilometers. Eleven of these will be in the shallow area and three in the deep Area C.”

1. The new fiscal regime will not only apply to the auction but also all subsequent Production Sharing Agreements (PSAs) to be signed for areas such as the Kaieteur and Canje oil blocks.
2. It will not apply to the ExxonMobil-led Stabroek Block which holds all of Guyana’s commercial discoveries thus far.

• • • • • In addition to the 10 percent royalty, government also agreed a 65 percent cost recovery ceiling in a given year.

“We have the consultants working to strengthen the (model) PSA in a number of other areas. The laws of the country will also be amended accordingly to support the auction.”

IHS is a global powerhouse which monitors the pulse of the industry. It was able to determine that Guyana is not the only country vying for the interest of investors via auctions. 65 countries are either conducting a bid round or launching one. The United Kingdom launched a massive bid round with over 900 oil and gas blocks up for grabs.

“We know the funds are scarce largely because of climate change targets companies have to meet too. It is harder to raise funds for the sector because we have some cases where loans garnered by companies are being vetoed for the oil sector. We have seen globally from the international oil companies as well that about 70 to 80 percent of their total spending used to go to upstream activities.”

By 2025, this is anticipated to drop around 60 percent. Some companies are even shaving off global assets due to climate change commitments. Even with such an environment, Guyana will succeed with the new fiscal formula to be applied to oil contracts going forward.

LOCALS HAVE A CHANCE

Guyanese will have a chance to compete alongside foreign entities for the oil blocks and there will be minimum technical and financial qualifications that have to be met. “We don’t want it to be too onerous. The qualifications will be more stringent for the ultra deep areas because only few companies can work there.”

• • • • • Government will seek a minimum signature bonus of US$20M for companies that win the deepwater blocks and US$10M for winners of the shallow water concessions. There are no restrictions on how many blocks a company can bid for but three is the most one company can get.

RELINQUISHMENT

Government will tighten up relinquishment provisions for the awarded blocks.

• • Companies will be able to hold the blocks for 10 years and have an initial three year period for seismic work.
  • Once that period expires, the company would have to give up 50 percent of the block.
  • Two extensions, each carrying a one-year lifecycle, will be granted to execute the drilling programmes.

This aggressive relinquishment approach is being taken to prevent companies from sitting idly on the blocks and preventing full use of blocks.

• • Companies would have to outline how much they plan to spend on seismic work.
  • If they do not commit to it, they would be penalised. and be made to pay the State the full amount committed for the seismic work and lose the block.
  • Competing companies would be considered against each other for their work programme and spending therein as well as the signing bonus they are willing to pay.

RINGFENCING

One of the highly criticised loopholes of the 2016 Stabroek Block Production Sharing Agreement (PSA) signed with ExxonMobil and its partners is the absence of ring-fencing provisions. Such clauses are necessary to protect the revenues of one producing field from being significantly decreased by expenses associated with another project.

The International Monetary Fund (IMF) had said that Guyana runs the risk of having a smaller pie to take from the Liza Phase One Project since the money made from that development would be used by Exxon to offset costs associated with developing or drilling other fields. If there were ring- fencing provisions in place, Exxon would only be able to deduct expenses related to Liza One from the revenue made.

Jagdeo noted that this was an area of concern, hence none of the blocks for auction is as large as the Stabroek Block which covers 26,800 square kilometres. As a result of most blocks being 2000 square kilometers, said there would be no need to worry about several projects being developed to the scale that is being done on the Stabroek Block. As is already being done, once a company signs a contract for any of the 14 blocks, they would not be able to take expenses from one block over to another.

The bid round will be launched soon and last for five months.

Bid Benefits

November 4, 2022

Increased royalty, corporate tax, 50 per cent profit among new fiscal conditions identified ahead of auctioning of 14 oil blocks

–provisions in place to ensure there are consistent activities in auctioned blocks
Government agreed to auction 14 remaining offshore oil blocks under new fiscal terms, which will subject successful companies to 50 per cent profit sharing, a royalty rate of 10 per cent, and corporate tax of 10 per cent, among other things.

The new fiscal terms and other conditions for future Production Sharing Agreements (PSA) were outlined by Vice-President Dr. Bharrat Jagdeo in an update on the s progress regarding the imminent oil-block auction. Guyana is among 65 countries launching auctions of oil blocks and the government worked with international consultant, IHS Markit Consulting, to offer the best terms that will see the country remaining competitive while also getting a fair deal.

“These are key fiscal conditions. We know already funds are scarce [for oil-and-gas exploration], largely because of net zero targets. It is more and more difficult to finance the oil-and-gas sector. IHS Markit assured us at this level, although they [the conditions] may seem high to some people, that we will remain very competitive. Some will believe we’re taking too much; others will complain we should have taken everything under the sun. We opted for a simple formula with fixed royalties. Some countries have variable royalty, depending on internal rate of return; we did not go with that complex system. We opted for a simple system which can be understood by everyone. The fixed royalty protects against when oil prices drop.”

The new fiscal terms and other conditions will not be applicable to existing contracts. Outside of the fiscal terms, there will also be other ways in which the government will be moving forward with a stronger PSA to derive lucrative benefits from the oil-and- gas sector.

The strengthening will take place in the entire PSA. Laws of the country will also be amended where necessary to reflect anything inconsistent with that. The government will also implement stronger relinquishment provisions that will be part of a work programme, which each bidder will be required to submit. The work programme, along with the bidder’s price, will form the criteria that the government will utilise to assess the bids and determine the successful awardees.

In the work programme, the companies will have to outline spending commitments, and if the money is not spent, it will become a penalty that the company will have to pay to the government.

It will prevent people from taking a block and sitting on it.

RING FENCING
The contract will include ring fencing, which means that in computing the profits of an enterprise, only the expenses directly referable to that enterprise or oil activity can be deducted from the income earned from that field. Based on the new conditions, the maximum amount that could be recouped as cost oil is up to 65 per cent of revenue.

“We were exploring two models for ring fencing; around the fields model or around the contract. We have decided on ring fencing around contract; this is because the area is small. So, you don’t need to ring fence around projects. We’re told it’s the most efficient way.”

With the conditions in place, it paves the way for the auction, which is expected to run for five months after its date of commencement. The 14 blocks that will be auctioned range in size from 1,000 square (sq) kilometres (km) to 3,000 sq km. 11 of the blocks will be in a shallow area, while three of the blocks will be in deeper waters. Some of the requirements for the bidding process will be different for the three deep-water blocks, as opposed to the 11 shallow-water blocks. In particular, winning bids for the three deep-water blocks will require a minimum signing bonus of US$20 million per block, while the 11 shallow-water blocks will carry a minimum signing bonus of US$10 million per block.

The separate types of blocks will also carry different relinquishment provisions: Shallow-water blocks will be given a period of five years, while deep-water blocks will get 10 years.

For both types of blocks, companies will have three years to conduct seismic tests, after which they will have to relinquish 50 per cent of the block.

“We are doing this because we want greater turnover; we don’t want people to sit on the blocks.”

There will be two one-year extensions for the shallow blocks. For shallow-water blocks, the last two of the five years will be split into two one-year exploration periods, while for the deep-water blocks, their remaining seven years is also to carry out exploration.

Companies will be allowed to bid for as many blocks as they like, however, they would only be awarded a maximum of three blocks.

To make the bids more competitive, the government will be allowing both locals and foreign investors to bid. There will be minimum technical and financial qualifications, which will be more stringent for three ultra-deep areas, since just few companies, globally, have the resources to work in such conditions.

Regarding arrangements for possible government-to-government partnerships, and or the establishment of a National Oil Company (NOC), the possibilities are being discussed but there are still a number of offshore oil blocks outside of the 14 that will be up for auction.

 

First competitive offshore oil and gas licensing round

07 Nov 2022

14 oil blocks available for bidding

Greater, competitive fiscal terms:

• 2% royalty increased to 10%;
• 76% cost recovery ceiling reduced to 65%;
• where there was none before, a 10% corporate tax paid by the operator;
• Enhanced enforcement of minimum work commitments and relinquishment requirements;
• Licensing round open to international and Guyanese companies that meet the minimum qualification criteria.

The Government of Guyana through the Ministry of Natural Resources announced that fourteen (14) oil blocks were identified and will be auctioned for its first-ever competitive offshore oil and gas licensing round. The ministry is pleased to announce a wave of enhanced fiscal terms to guide all future offshore investments should projects reach production stage.

As part of this new model agreement, royalty has been increased from the 2% granted to the Stabroek Block under the former regime to an impressive 10%. The current 75% cost recovery ceiling has been lowered to 65%. Profit sharing after cost recovery remains the currently applied 50/50 system between the contractor and the Government. These new terms have doubled Guyana’s share from 14.5% to 27.5%, plus the newly introduced 10% corporate tax.

Commenting on the improved fiscal terms, Minister of Natural Resources Hon. Vickram Bharrat M.P highlighted that the changes come on the heels of reviewing the licensing models of global oil producers, complemented by advice of industry experts.

‘These incentives are expected to attract major international oil companies with the necessary finance and expertise to expedite the prospecting and development of oil discoveries within the shortest possible timeframe,’ Minister Bharrat said. ‘This is in keeping with the government’s vision to increase the extraction of petroleum resources to satisfy global demands, while at the same time utilizing earnings to strengthen Guyana’s non-oil sectors for a robust and stable economy. The government remains steadfast in realizing the One Guyana vision where all Guyanese will benefit from our extractive resources.’

Of the fourteen (14) blocks – ranging from acreages of 1,000 sq kms to 3,000 sq kms – eleven (11) are located in shallow water, with the remaining three lie in ultra-deep-water.

Oil companies participating in the upcoming auction will be required to pay a minimum signing bonus of US$10 million for shallow blocks while the deep-water blocks carry a signing bonus of US$20 million.

Qualified local companies will be given an opportunity to bid for blocks, but must they must possess a proven track record of technical, financial, health and safety, and environmental capabilities. Bidders will be assessed based on their guaranteed work programmes which will be weighed with the offered signing bonus. Local content commitments will also be fully examined.

There will be no restrictions on how many bids a company may submit, however, each successful bidder will be limited to an award of three blocks.

As part of the strengthened enforcement of the work programme, successful bidders will have to guarantee that they will make good on commitments made under their work agenda. Failure to meet this will result in the government initiating a penalty of the unspent amount of the work programme.

The aforementioned terms and conditions have been finalized by the Cabinet which will usher in a new era of oil and gas development. This will be characterised by a competitive and favourable investment mechanism and improved socioeconomic benefits for a nascent oil and gas-producing nation.

The government will make amendments to the Petroleum (Exploration and Production) Act 1986 to reflect where necessary, the fiscal changes identified for this national bid round and all future operations. The licensing round process is expected last for five months and should be concluded by the end of the first quarter of 2023.

Offshore Guyana

Since first oil was struck in the Stabroek Block in 2015, Guyana’s offshore basin has seen unprecedented development, with this small nation setting a new paradigm for the expeditious development and prudent management of oil and gas resources.

With potential resources in excess of twenty-five (25) billion barrels and a proven reserve of eleven (11) billion barrels, the Guyana Basin is one of the most exciting and lucrative drilling frontiers, home to the world’s fastest-growing super basin seen in recent years.

This licensing round gives qualified international and local companies the opportunity to tap a country whose hydrocarbon potential places it among the top- five non-OPEC countries set to lead as global producers by 2045.

Source: Guyana Ministry of Natural Resources

 

The world’s most exciting oil frontier: with 1 million bpd by 2030

Thursday, November 10th 2022

No end to surprises from offshore Guyana and an ExxonMobil-led consortium, which have identified at least 11 billion barrels of recoverable oil resources, and catapulted the country firmly onto the global oil map. The offshore Guyana-Suriname Basin, the world’s most exciting oil frontier attracts considerable attention from global energy companies.

Despite industry infrastructure shortfalls and other constraints there are clear indications that the oil boom which delivered a massive economic windfall for Guyana is preparing to explode.

Exxon only days ago announced two additional oil discoveries in the world class 6.6-million-acre Stabroek Block offshore which now holds 40 discoveries. Other energy companies are investing heavily in offshore Guyana, a jurisdiction that has some of the lowest operating costs in South America. Guyana is poised to emerge, before the end of this decade, as a leading global oil producer and and exporter.

Exxon’s latest oil discoveries in offshore Guyana were with the Sailfin-1 and Yarrow-1 wells in the Stabroek Block. Sailfin-1 encountered 312 feet of hydrocarbon bearing sandstone while Yarrow-1 only found 75 feet. That brings the number of discoveries made by the Exxon led consortium, where the energy super-major is the operator holding a 45% interest with 30% controlled by Hess and the remaining 25% by CNOOC, in the Stabroek Block to 40 since 2015.

The Exxon consortium secured extremely favorable terms from Georgetown for the development of the Stabroek Block, with one of the most advantageous production sharing agreements ever obtained. For that reason, those operations will be highly profitable for Exxon, as well as partners Hess and CNOOC, because of forecast industry low breakeven prices of US$ 25 to US$ 35 per barrel Brent. For this reason Exxon is investing heavily ramping up activity in the Block with many projects ahead of schedule. The block is expected to become a major growth driver for the global energy super-major.

Exxon ramped up activity in the Stabroek Block with the Liza Phase 1 and Liza Phase 2 operations now producing at above nameplate capacity, pumping a combined total of around 360,000 barrels of petroleum per day. The integrated super-major is working on other projects in the Block. These include the 220,000 barrel per day Payara project which was approved by the government during September 2020. It will add a third production, storage and offloading (FPSO) vessel, named Prosperity, to the two FPSOs working in the Liza oilfield. Payara will have 41 wells, 20 production and 21 injection wells with start-up anticipated during 2023.

Thee Yellowtail development is planned to have 51 wells, 26 production and 25 injection wells. Yellowtail, which will have nameplate capacity of 250,000 barrels per day, will add a fourth FPSO to Exxon’s operations in the Stabroek Block. It is anticipated that the project will commence production during 2025. Exxon expects to be pumping one million barrels per day from the Stabroek Block by 2030.

 

Auction of 14 offshore blocks using revamped royalty scheme

Laws will be amended to improve government take

4 November 2022
By Fabio Palmigiani in Rio de Janeiro

Guyana plans to offer 14 offshore exploration blocks to investors in a bid round scheduled for next year, introducing new fiscal terms to boost revenue from the oil sector.

Guyana had initially aimed to stage the competitive bid round this year but Vice President Bharrat Jagdeo said extensive preparatory work had to be completed in a fast-moving global situation. Potential bidders will be provided with terms and conditions before the auction is formally launched.

Exxon reports two discoveries on Stabroek Block

November 6, 2022

In late October, two more oil discoveries offshore at the Sailfin-1 and Yarrow-1 wells in the Stabroek Block, following two discoveries at Fangtooth-1 and Lau Lau-1  in January, three discoveries in April at the Patwa, Barreleye, and Lukanani wells and two discoveries at Seabob-1 and Kiru-Kiru-1 in July bring the total discoveries in Guyana in 2022 to nine.

Since 2015, the Stabroek Consortium, led by operator, ExxonMobil, has made 40 discoveries on the block, as offshore development and production increased, and Guyana’s oil-and-gas sector rapidly expands.

In preparation for up to 10 floating production, storage, and offloading vessels (FPSOs) operating in Guyana by the end of the decade, ExxonMobil and its partners increased investment in local facilities, signing deals with projects like the Vreed-en-Hoop Shore Base Inc. (VEHSI) project, a 100 per cent Guyanese- owned operation that will significantly boost logistics capacity in all sectors.

These moves represent confidence that Guyana’s position as a stable and democratic oil producer will be a necessary partner in the decades to come, as consumers are able to benefit from increased production.
President of ExxonMobil Upstream Company, Liam Mallon hailed the progress made to date, as Guyana continues to see success with its exploration, and an accelerated pace of development.

“We are committed to responsibly and safely developing this world-class resource to help meet global demand for secure, reliable and lower-emission energy. Our investments, through the pandemic, have allowed us to increase supply at this critical time, while creating value for the people of Guyana, our partners and shareholders,” Mallon said.

Investments in Guyana continue to surpass record levels, as companies see the country’s burgeoning oil sector as an attractive prospect. With a global recession on the horizon, doing so requires a careful balance of the fiscal terms and non-fiscal factors that make a country an attractive destination for investment.

The government recognises that developing its oil-and-gas sector is the best opportunity to bring in capital necessary to grow the economy and improve the standard of living for Guyanese. Being able to maximise value to the country is crucial to the long-term well-being of Guyana as an emerging regional leader.

With companies on the hunt for more oil resources in the country and targeting more wells, now, more than ever, is a critical time for Guyana to strike the right balance between increasing investments, staying competitive and creating transparent processes that will benefit all parties involved.

Under the terms of the production sharing contract, companies are incentivised to make operations as cost-effective and safe as possible. Mitsui Ocean Development & Engineering Company Inc. (MODEC) has been contracted to build the fifth FPSO to operate offshore. This will bring additional diversity to the supply and service companies setting up new headquarters in Georgetown.

Many of the most promising jobs and contract opportunities that will be available to local workers and companies come, not from major oil companies but from contractors like MODEC that do much of the day-to-day work of production. Having more of them operating in Guyana bodes well for local content.

Guyana is working to develop its resources rapidly, to make sure it takes advantage of high demand for oil that may not last long- term. Maximising revenues now can help ensure sustained economic and social investments for the foreseeable future. The country has already been the recipient of some of the largest investments in the world in offshore development.

The accelerated pace of development in the country reflects the skill and efficiency of thousands of experts working to take advantage of a limited time opportunity to capitalise on the earning potential of the Guyanese oil-and-gas sector. These two new discoveries and another FPSO in the works reflect another step forward for local businesses, workers and the economy.

 

CGX Energy/ Frontera Energy- Corentyne

New spud window for exploration well as Noble rig delayed

NOVEMBER 2, 2022, MELISA CAVCIC

Canadian partners revised the spud window for their second exploration well on the offshore Corentyne block since the rig, hired for drilling operations was delayed on its current assignment.

Frontera Energy and CGX Energy disclosed a plan to spend up to $130 million on their second exploration well following positive results from the first well, Kawa-1. After securing funding for this well, they anticipated the spudding of the well, Wei-1, during October 2022.

The JV exercised its option to use the 2009-built Maersk Discoverer semi-submersible rig for the Wei-1 well, confirmed by Maersk Drilling. Originally, the drilling contract for this rig was awarded in April 2021 for the drilling of the Kawa-1 exploration well on Corentyne block.

After the business combination between offshore drilling contractors, Noble Corporation and Maersk Drilling, was completed in October 2022, creating “a new and dynamic leader in offshore drilling,” all rigs in Maersk Drilling’s fleet become part of the Noble fleet with newly assigned names. Therefore, the rig hired for the drilling of the Wei-1 well is now called Noble Discoverer.

 

‘A defining moment in the history of offshore drilling’

In an update on progress in drilling this well, CGX and Frontera confirmed that the release of the Noble Discoverer drilling rig to CGX has been delayed due to “unforeseen challenges to the exploration activities of a third-party operator.” The duo explained that this situation is “beyond the reasonable control” of the JV.

According to Noble Corporation’s fleet status report, the Noble Discoverer rig was working for Shell in Trinidad and Tobago from March 2022 until October 2022, when the rig was supposed to move to Guyana to undertake the drilling of the Wei-1 well. Based on information on Noble’s website, this rig is still in Trinidad and Tobago and is slated to become available in December 2022.

Frontera and CGX sent the revised spud window for the Wei-1 well to the government of Guyana, expecting this to be between December 2022 and late January 2023.

Final preparations are complete in advance of spudding the Wei-1 well, located approximately 14 kilometres northwest of the Kawa-1 exploration well in the Corentyne block, approximately 200 kilometres offshore from Georgetown, Guyana.

Gabriel de Alba, Frontera’s Chairman of the Board of Directors, commented: “The company, through its joint venture with CGX, looks forward to building on the light oil and condensate discovery at Kawa-1 with the spudding of the Wei-1 well, offshore Guyana in between December 2022 and late January 2023, subject to rig release by the third-party operator.”

This well will be drilled in a water depth of approximately 1,912 feet (583 metres) to an anticipated total depth of 20,500 feet (6,248 metres), targeting Maastrichtian, Campanian and Santonian aged stacked channels in a western channel complex in the northern section of the Corentyne block.

Noble Discoverer is a DSS-21 column-stabilized dynamically positioned, sixth-generation semi-submersible drilling rig, capable of operating in water depths of up to 10,000 ft.

 

Maersk Nomad wins Exxon contract

NOVEMBER 3, 2022, BY NADJA SKOPLJAK

MAERSK SUPPLY SERVICE SECURED A CONTRACT WITH EXXONMOBIL GUYANA FOR THE SUBSEA SUPPORT VESSEL (SSV) MAERSK NOMAD TO BE DEPLOYED ON FIELD DEVELOPMENT ACTIVITIES OFFSHORE .

Maersk Nomad will operate with two remotely operated vehicles (ROVs) onboard, providing general and subsea support scopes for six ultra-deepwater drillships operating in the Stabroek Block. All are expected to continue operating for the foreseeable future.

The contract was signed for a minimum of one year. The first charter is expected to begin in mid-November out of Georgetown. Managing director for Maersk Supply Service in Brazil and Latin America. Rafael Thome, said,

“This is a great milestone for Maersk Supply Service, as we expand our operations and offering in Latin America. We now look forward to building a positive relationship with ExxonMobil offshore Guyana, and to build on Maersk Nomad’s strong track record of delivering long-term contracts offshore Angola for ExxonMobil’s local affiliate.”

Maersk Supply Service

 

MODEC wins breakthrough FEED prize for Uaru

First Guyana floater set for follow-on EPCI scope

01 Nov 2022

MODEC signed a contract to perform Front End Engineering and Design (FEED) for a Floating Production, Storage and Offloading vessel (FPSO) for the ‘Uaru’ development project. The FEED contract award relates to the initial funding by ExxonMobil’s  subsidiary, Esso Exploration and Production Guyana Limited (EEPGL), to begin FEED activities related to the FPSO design and to secure the second M350TM hull for FPSO service.

Following FEED and subject to government approvals of the development plan, project sanction including final investment decision by ExxonMobil, and EEPGL’s release of the second phase (EPCI) of work, MODEC is expected to construct and install the FPSO in Guyana. MODEC is also anticipated to operate the FPSO for an initial duration of 10 years, with potential options for continuation. Japanese floater specialist MODEC will design and construct the FPSO based on its M350 new-build design. Uaru will be the second M350 hull used for FPSO service. The FPSO will be designed to produce 250,000 barrels of oil per day, will have associated gas treatment capacity of 540 million cubic feet per day and water injection capacity of 350,000 barrels per day.

The FPSO will be installed in a water depth of about 2000 meters, using a SOFEC Spread Mooring System and will be able to store around 2 million barrels of crude oil.

‘We are extremely honored and proud to be selected to provide the FEED services for an FPSO for the UARU project,’ commented Takeshi Kanamori, President and CEO of MODEC. ‘We are equally proud of our robust track record of successful project deliveries in the South America region, and we look forward to cooperating closely with the client and its partners to make this project a success.‘

The FPSO will be MODEC’s first for use in Guyana, and the 18th FPSO/FSO vessel delivered by MODEC for use in South America.

 

Exxon Mobil

In fiscal year 2020 when Exxon Mobil was about the only company in the industry going “full blast” and racking up debt to the consternation of observers, there was a consensus that it was not sustainable. Then came the full year loss for the first time in a very long time (in fiscal year 2020) but the company had long planned to fix things before that loss happened. It takes a lot of time with the size of Exxon Mobil. Now, the results are becoming apparent to the market.

What may not be apparent to the market is the new lean and mean  Exxon Mobil has growth ahead for the first time in a very long time. That growth is just beginning.

(Hess Presentation At Barclays CEO Energy-Power Conference September 2022)

 Hess presented some of the near-term plans for the Guyana Partnership that Exxon Mobil operates. Exxon Mobil reported two more discoveries while mentioning they expect this partnership to produce 1 million barrels of oil per day by the end of the decade. That kind of discovery is significant for a company the size of Exxon Mobil.

There is considerable upside for this project not only on the current block but also on the blocks where little exploration has so far been done.

By far, the largest advantage of continuing to work through the pandemic (and the industry downturn in general) was the rock-bottom prices that the company got in the first two FPSOs that are now producing. The high prices of commodities enabled an unexpectedly fast repayment of capital costs for a project that usually measures payback in years instead of months.

Nothing is more important than a lot of cash flow in the early part of a project that produces unexpectedly fast repayment of early capital costs. Since the discounted cash flow models used by management emphasize the importance of more cash now rather than later, currently, strong commodity prices have likely improved the project profitability materially.

Currently, strong commodity prices have also allowed a level of partnership self-financing that was not imaginable back in fiscal year 2020 when the long-term debt levels were climbing. There was some pressure for faster development of the reserves. That pressure can be met with more activity thanks to the planning that enabled the partnership to take advantage of the strong commodity prices.

The lower costs of the first FPSOs will likely maintain a cost advantage throughout the basin that will last a decade or two because these wells are long-lived. Estimates on the fourth platform vary as high as 50% more now that the offshore business is beginning to recover. Then there is the higher cost of services and equipment as well. Despite the additional debt necessary in fiscal year 2020, this company ended up with a very profitable proposition for the first 3 FPSOs that competitors in the basin will likely not be able to match.

Earnings Planning
The company grew other production as well. This company operates in the Permian, where it likewise was drilling and completing wells right through the industry downturn. Management reported overall growth in earnings of less than two percent over the previous quarter but the projects are in place for more growth in the future. It just takes time to get those projects going to the point where they are significant to a company the size of Exxon Mobil.

When one listens to a Warner Bros. Discovery transcript, the most frequent comment from management is that the earnings reported now are from decisions made roughly 3 years ago. Management has often made that comment to remind investors what it takes to turn a large acquisition around. Management has to plan for market conditions way ahead of time to succeed when you are large. That is a very hard concept to get across to the market.

Exxon Mobil is still larger than that combination that came to be Warner Bros. Discovery. The progress that investors see now revolves around a decision made probably when the new CEO took over to get the company growing. Now that the profits and production growth show some progress, there is probably more on the way.

Earnings Results

The third quarter actually came in better than the second quarter. This is a result that few observers expected but those long-term followers of Exxon Mobil know that management long ago promised to reduce the corporate breakeven.

That process took years but it is now apparent that the process to reduce the corporate breakeven point is well underway and producing results. Exxon Mobil is well on its way to a record year but what is more important is that the loss year in fiscal year 2020 that so concerned the market as the debt was increasing now turns out to be offset by one-quarter of earnings in current conditions.

Management reported that long-term debt is now under the original goal. That means there is plenty of room for more debt should management find profitable projects to develop during a downturn. This company has long been a counter-cyclical company. As a result, management often obtains long-term cost advantages that few can match by developing projects when the rest of the industry is largely idle. The countercyclical strategy is likely to continue well into the future.

Up Next For Management
Management has some other giant projects as they have a huge natural gas find in Papua New Guinea that plays a profit role that few imagined when the company began that project. In 2016, the company acquired InterOil for about $2.5 billion. Current natural gas prices are likely to allow the company to make that cost back many times over. That acquisition is looking more and more like a steal.

Management is also partnered with other companies in Brazil. A discovery off the coast of Brazil is likely to further enhance future growth projects.
In the meantime, there is a lot more upside potential to Guyana on other leases owned with different partnerships. This company has a lot of growth possibilities that are very unusual for a company the size of Exxon Mobil

In the near term, growth is likely to accelerate into the mid-single digits. That would provide earnings and cash flow to keep raising the dividend while providing a total return in the low teens. Few large companies this size with the sky-high financial strength have the growth prospects lined up like Exxon Mobil.

As a result, this company can be considered for both income and appreciation investors. The safety of the company due to the high financial strength ratings makes the lower returns competitive with riskier companies on a risk-adjusted basis. Management just raised the dividend by $.03 per quarter. There is likely to be more raises where that came from in the future. This company is a dividend king where both vertical and horizontal diversification provide an unusual amount of investment safety. Strategic execution is also among the best in the industry as well.

 

Exxon : Breakout Time

Oil & Gas Value Research

More Guyana discoveries reported. Clearly taking on more debt in fiscal year 2020 turned out to be the right move because those projects now take advantage of very strong commodity prices. The Guyana partnership is expected to produce 1 million BOD by the end of the decade. The cost advantage to major projects of working through the industry downturn is considerable, despite the additional debt. This company reported production growth at a time when few companies in the industry are growing.

 

ExxonMobil FPSO order with SBM Offshore

November 9, 2022, by Nermina Kulovic

U.S. oil major ExxonMobil plans to order another floating production storage and offloading (FPSO) vessel for a project in Guyana from the Dutch FPSO operator, SBM Offshore.

SBM Offshore signed a Memorandum of Understanding (MOU) with ExxonMobil Guyana for the construction of a multi-purpose floater hull for use on a future FPSO project. The memorandum grants exclusivity for the seventh Fast4Ward hull.

ExxonMobil and SBM Offshore have a long history of working together, with multiple FPSO projects underway.

Over the years, the Dutch company secured several contracts for the provision of FPSO vessels to ExxonMobil, including Liza Destiny and Liza Unity, which are operating in Guyana, as well as Prosperity and ONE GUYANA FPSOs. The construction of the topside modules for the last one started in September 2022.

According to ExxonMobil, at least six FPSOs with a production capacity of over 1 million gross barrels of oil per day are expected to be online on the Stabroek Block in 2027, with the potential for up to 10 FPSOs to develop gross discovered recoverable resources. In late October, ExxonMobil added two more discoveries to its Guyana portfolio following results from the Sailfin-1 and Yarrow-1 wells.

Japan’s MODEC secured a FEED contract for ExxonMobil’s FPSO for Uaru, the fifth development project . MODEC is expected to construct and install the FPSO.

 

MoU with Dutch SBM Offshore for next oil ship

Nov 10, 2022

American oil giant, ExxonMobil Corporation and Dutch shipbuilder, SBM Offshore signed a Memorandum of Understanding (MoU) for another floating production storage and offloading (FPSO) vessel to serve a future project in Guyana.

Over the years, the Dutch company secured several contracts for the provision of FPSO vessels to ExxonMobil, including the Liza Destiny and Liza Unity, which are already operating in Guyana, and producing over 360,000 barrels of oil per day. SBM was also contracted to construct the Prosperity FPSO set to arrive next year to work in the Payara field as well as ONE GUYANA FPSO. The construction of the topside modules for the last one started in September 2022.

In July, SBM Offshore revealed that the ONE GUYANA would cost US$1.75 billion. The project financing was secured by a consortium of 15 international banks. The Company expects to draw the loan in full, phased over the construction period of the FPSO.

The FPSO will be designed to produce approximately 250,000 barrels of oil per day will have associated gas treatment capacity of 450 million cubic feet per day and water injection capacity of 300,000 barrels per day. The FPSO will be moored in water depth of about 1,800 meters and will be able to store around two million barrels of crude oil.

The project is part of the Yellowtail development, the fourth development within the Stabroek block, some 200 kilometres offshore Guyana.

Mitsui Ocean Development & Engineering Company (MODEC) based in Japan, signed a contract to perform Front End Engineering and Design (FEED) for a Floating Production, Storage and Offloading vessel to operate at Exxon’s “Uaru” development project in the Stabroek Block. MODEC will design and construct the FPSO based on its M350 new-build design. The FPSO will produce 250,000 barrels of oil per day, will have associated gas treatment capacity of 540 million cubic feet per day, and water injection capacity of 350,000 barrels per day. The FPSO will also be installed in a water depth of about 2000 meters, using a SOFEC Spread Mooring System and will be able to store around 2 million barrels of crude oil.

Exxon’s Field Development Plan for Uaru awaits approval and the Environmental Impact Assessment (EIA) for the project. These are usually made prior to the Environmental Protection Agency (EPA) issuing an Environmental Authorisation for the project.

 

SBM Offshore signs agreement with ExxonMobil for sixth Guyana FPSO

MoU was signed after US supermajor awarded contract to arch-rival Modec for another floater

11 November 2022 Fabio Palmigiani in Rio de Janeiro

Netherlands-based SBM Offshore signed a memorandum of understanding with ExxonMobil for a multi-purpose hull to be used by the US supermajor on a floating production, storage and offloading vessel offshore Guyana.

The MoU was announcedt two weeks after ExxonMobil awarded SBM’s Japanese arch-rival Modec a front-end engineering and design contract for an eventual FPSO that will be deployed in the Uaru field in Guyana’s prolific Stabroek block.

“ExxonMobil and SBM Offshore have a long history of working together, with multiple FPSO projects under way,” SBM said.

25 October 2022

By Fabio Palmigiani in Rio de Janeiro

ExxonMobil started an appraisal programme to an exploration well originally labelled as a step out discovery in the Stabroek block offshore Guyana, as the US supermajor seeks to find additional oil volumes in the prolific play.

The operator has already unlocked nearly 11 billion barrels of oil equivalent in recoverable resources from 40 discoveries in Stabroek since mid-2015.

ExxonMobil began drilling the Fangtooth SE-1 well with the Stena Drilling drillship Stena Carron, according to updated information from Guyana’s Maritime Administration Department.

 

ExxonMobil books DOF Subsea vessels

October 21, 2022, by Nadja Skopljak

Norwegian DOF Subsea secured a three-year contract for two multipurpose support construction vessels (MPSVs) with Esso Exploration & Production Guyana.

DOF Subsea will perform inspection, maintenance, and repair (IMR), well-intervention support, and light subsea construction activities to support the growing subsea infrastructures in the Stabroek Block offshore Guyana.

The two MPSVs, featuring 250-ton AHC cranes and work-class ROV systems, will be deployed in Guyana for three-year terms, plus two years options. The first vessel will mobilize late this month, while the second is planned to commence work in January 2023.

Mons S Aase, CEO of DOF Subsea said: “I am extremely happy with this contract award from ExxonMobil Guyana, and entering the important and flourishing Guyanese market. The award further underlines DOF’s leading position in the IMR segment.”

DOF Subsea and Esso are also collaborating in Australia under a long-term contract signed earlier this year for an MPSV.

The Stabroek Block, located approximately 120 miles offshore Guyana, has a surface of 26,800 square kilometers. Esso Exploration and Production Guyana, an ExxonMobil affiliate, is the operator and holds a 45 per cent interest. Hess holds a 30 per cent interest and CNOOC Petroleum Guyana holds a 25 per cent interest.

ExxonMobil sanctioned its fourth and largest to-date oil development on the Stabroek Block at the beginning of April. Shortly after, the oil major announced it had made three new discoveries offshore Guyana.

 

ExxonMobil appraisal of deeper play

Appraisal of Fangtooth-1 could point to another reserves boost for Guyana’s golden block

25 October 2022
Fabio Palmigiani in Rio de Janeiro

ExxonMobil has started an appraisal programme to an exploration well originally labelled as a step out discovery in the Stabroek block offshore Guyana, as the US supermajor seeks to find additional oil volumes in the prolific play.

The operator has already unlocked nearly 11 billion barrels of oil equivalent in recoverable resources from 40 discoveries in Stabroek since mid-2015.

ExxonMobil began drilling the Fangtooth SE-1 well with the Stena Drilling drillship Stena Carron, according to updated information from Guyana’s Maritime Administration Department.

 

ExxonMobil record US$19B earnings in third quarter

Oct 29, 2022

Supermajor ExxonMobil Corporation announced that its third-quarter 2022 earnings of US$19.7 billion, or US$4.68 per share was a record-shattering increase over its earnings in the previous quarter of a US$17.9B. Third-quarter results included US$1B in earnings from divestments of assets in Canada and Romania. Earnings benefited from higher production volumes in its advantaged assets in the Permian Basin which delivered record production of nearly 560,000 oil-equivalent barrels a day.

Offshore Guyana, the quarterly average gross production increased to nearly 360,000 oil-equivalent barrels per day, with the Liza Phase One and Liza Phase Two production exceeding design capacity by over 15,000 barrels per day.

Two new discoveries in the Stabroek Block at the Sailfin-1 and Yarrow-1 wells, add to the company’s extensive portfolio of development opportunities. Yarrow-1 well encountered approximately 75 feet (23 meters) of high quality oil bearing sandstone reservoirs. The well was drilled in 3,560 feet (1,085 meters) of water and is located approximately 9 miles (14 kilometers) southeast of the Barreleye-1 discovery.

The Sailfin-1 well encountered approximately 312 feet (95 meters) of high quality hydrocarbon bearing sandstone reservoirs. The well was drilled in 4,616 feet (1,407 meters) of water and is located approximately 15 miles (24 kilometers) southeast of the Turbot-1 discovery. The Banjo-1 exploration well drilled earlier in the third quarter did not encounter commercial quantities of hydrocarbons.

Darren Woods, Chairman and Chief Executive Officer, said, “Our strong third-quarter results reflect the hard work of our people to invest in and build businesses critical to meeting the demand we see today. We all understand how important our role is in producing the energy and products the world needs, and third-quarter results reflect our commitment to that objective. The investments we’ve made, even through the pandemic, enabled us to increase production to address the needs of consumers.”

Rigorous cost control and growth of higher-margin petroleum and chemical products contributed to earnings and cash flow growth in the quarter. Exxon is expanding its Low Carbon Solutions business with the signing of the largest-of-its-kind customer contract to capture and permanently store carbon dioxide, thereby demonstrating its ability to offer competitive emission-reduction services to large industrial customers around the world.

Exxon and consortium partners, Hess Corporation and CNOOC Petroleum Limited currently have four sanctioned developments on the Stabroek Block. The Liza Phase One and Phase Two developments are operating at their combined gross production capacity of over 360,000 barrels of oil per day. The third development at Payara is on track to come online at the end of 2023 utilizing the Prosperity FPSO with a production capacity of approximately 220,000 gross barrels of oil per day.

The fourth development, Yellowtail, is expected to come online in 2025, utilizing the ONE GUYANA FPSO with a production capacity of approximately 250,000 gross barrels of oil per day.

A Plan of Development is expected to be submitted to the Government before year end for a fifth development, Uaru, expected to come online at the end of 2026 with a gross production capacity of approximately 250,000 barrels of oil per day.

The Stabroek Block is 6.6 million acres. ExxonMobil affiliate Esso Exploration and Production Guyana Limited is operator and holds 45 percent interest in the Stabroek Block. Hess Guyana Exploration Ltd. holds 30 percent interest and CNOOC Petroleum Guyana Limited holds 25 percent interest.

 

 

EIL wins US$22m contract for NGL plant

Neil Perry November 11, 2022

Mumbai firm will provide consultancy services for the setting up of the plant and manage the EPC of the project

Engineers India Limited (EIL), the Mumbai-based engineering consultancy and EPC company has been appointed by Guyana to provide project management consultancy services for the setting up of an Integrated Natural Gas Liquids (NGL) plant and 300MW CGT Power Plant project in the country, with an estimated contract value of US$22 million.

EIL will provide consultancy services for the setting up of the Integrated Plant and it will manage the Engineering, Procurement and Construction of the project on behalf of the government of Guyana.

The expected date of delivery for the 300MW power plant is December 2024. The plant is part of the Gas-to-Shore project at Wales, West Bank Demerara.

International Expansion

Being awarded the contract for the project is a major milestone for EIL as part of its strategy of going beyond its national boundaries. The company has been active in providing services in the Middle East, Africa, Central and Southeast Asia, and the Guyana project will further bolster its presence in the international market.

In operation since 1965, the firm has established a reputation as a leading global engineering consultancy and EPC company. Its services provided range from project conception to commissioning and it has diversified its operations into a variety of sectors, including fertilisers, power, water and waste management, metallurgy, nuclear, strategic storages, infrastructure, green technologies, and others, in addition to its robust oil and gas portfolio.

President Dr Irfaan Ali announced that CH4 and Lindsayca, one of five companies that submitted bids to undertake the project in September 2022, will also undertake the project under an EPC contract, which will be supervised by EIL.

US LINDSAYCA for negotiations on gas to energy plant

Guyana will own facilities, international company will operate

November 11, 2022

Cabinet issued a no-objection to a US firm ranked number one to build a 300 MW power plant fuelled by offshore natural gas – drawing the country closer to a project that will be the most expensive public sector undertaking in Guyana’s history.

Statement of His Excellency, Dr Mohamed Irfaan Ali, on the issuance of No-Objection to CH4/Lindsayca for 300 megawatt Gas Power Plant at Wales

November 10, 2022

As promised by the Government of Guyana in relation to our gas-to-shore project and the 300 megawatt gas power plant, as soon as decisions are made, we promise to make them available to the public.

The Government of Guyana, via Cabinet, today issued its no-objection to the ranking of CH4/Lindsayca as the number one ranked group to build a 300 MW Combined Cycle Power Plant and Natural Gas Liquids (NGL) Plant at Wales, West Coast Demerara (WCD), under an Engineering Procurement Construction (EPC) Contract. Cabinet’s no-objection will now allow negotiations to proceed to conclude an EPC contract. Power China was ranked number two and may be engaged if negotiations fail to conclude a contract with Lindsayca by the end of November.

Earlier this year, nine firms were publicly pre-qualified to bid on the EPC contract. A Request for Proposals (RFP) were issued to these pre-qualified bidders. At the closing date of September 13th, five (5) bids were received. These bids were evaluated for technical compliance and ranking by Stantec and Worley, two global engineering firms with expertise in oil and gas. Based on the reports of these international firms, an Evaluation team of three people, including a representative of Exxon, was appointed.

The Evaluation Team performed the evaluation in accordance with the technical and economic criteria set out in the RFP. On the basis of the bids submitted and clarifications received, the Evaluation Team unanimously ranked CH4/Lindsayca as number one, and Power China as number two.

Contract negotiations will now start with the expectation that a contract will be executed before the end of November. Key considerations in the evaluation took account of the expected date of delivery of the 300 MW power plant by December 2024. Both top-ranked companies confirmed this deadline. The EPC Contract will be supervised by a global supervision firm. The selected supervision firm is Engineers India Limited.

The 300 MW power plant and NGL plant will be owned by the Government of Guyana. Prior to the conclusion of the construction, an international firm will be competitively selected to operate the project to international standards and best practices. Exxon is expected to deliver the completed pipeline to the power plant by the fourth quarter of 2024, to achieve commissioning and testing of the 300 MW power plant by the end of 2024. The Gas to Energy Project is expected to deliver power at less than half of the current costs. Project generation costs, taking account of payment for the pipeline, operations and maintenance (O&M), and capital cost recovery, shall total less than five (5) US cents per kilowatt-hour.

Ladies and gentlemen, fellow Guyanese this is a significant movement forward in Guyana, not only achieving energy security, but us achieving an important benchmark that is a reduction in our energy costs so that our manufacturing and industrial development and expansion can take place and so that the ordinary families and the ordinary people can feel a substantial reduction in the cost of electricity in their pockets and in their household. Just for reference, a family at the end of this project that now pays GY$20,000 per month in light bill or electricity costs will see that costs coming down to GY$10,000.

As I said before, we have committed to full transparency and accountability to making every aspect of this project public and to sharing information with the public and all stakeholders as soon as it becomes available. Today, as Cabinet concluded, I am pleased to share immediately the no objection of cabinet on this key and important project in the transformation of our country. Thank you very much.

God bless you.

 

FAO to update Guyana maps

1 November 2022,

United Nations member, the Food and Agriculture Organisation (FAO) is assisting Guyana in updating base maps of the country for the first time in over 50 years.

The resulting data will then be entered into key layers to update the national base maps, which are over 50 years old

This exercise is part of the objectives of the Sustainable Land Development and Management (SLDM) project, which seeks to advance technology in land management and development. The project is implemented by Guyana Lands and Surveys Commission and the FAO with funding from Guyana’s REDD+ Investment Fund.

The FAO says aerial survey and mapping is being conducted across Guyana with laser imaging, detection, and ranging (LIDAR) technologies. The aerial survey will use an aircraft carrying LIDAR sensors and mapping cameras to collect highly accurate and detailed LIDAR and orthophoto maps of the land surface within targeted regions. The data collected will be processed to produce digital terrain models and map imagery for extracting infrastructure, water features, and 3D building models.

Over 500 square kilometres of the urbanised land area and over 15,000 square kilometres of the rural area will be surveyed using this new technology. International expertise will be provided by Medici Land Governance and its partners to conduct aerial surveying.

Mr. Enrique Monize, Commissioner of GLSC, said, “We are excited to see the latest mapping technologies being employed to advance land surveying. Even though LIDAR has been used before in Guyana, this is the first large scale activity that also combines the traditional imagery with LIDAR for mapping purposes in the country.”

Dr Gillian Smith, FAO Representative, added, “It is our pleasure to support Guyana’s efforts to transform land management and administration.”

 

 

UN warns against two energy projects

Oct 30, 2022

A Guyana pursues a USD multi-billion gas-to-energy project and a US$700 million hydro-electric project, an October 2022 United Nations (UN) Report warns against similar projects, adding that solar and wind are the ‘cheaper’, better energy option for Latin American and Caribbean (LAC) countries.

The United Nations Environment Programme (UNEP) launched its report titled, ‘Is natural gas a good investment for Latin America and the Caribbean?’ The UNEP, the world’s leading environmental authority, provides leadership and encourages joint work in caring for the environment, inspiring, informing and empowering nations and peoples to improve their quality of life without compromising that of future generations.

The UNEP report assessed the implications in Green House Gas (GHG) emissions, costs and job creation of the different power sector options (natural gas and renewable energy).

The Report proves that if the same funds that are being invested in the generation of electricity from natural gas were instead directed towards renewable energies then better economic results would be obtained and the region could recover faster and strengthen from the post-pandemic crisis, being in a better position to tackle climate change.

NATURAL GAS

The Report finds that pursuing natural gas projects in the Region is costlier than transitioning to renewable energy. Expansion of renewable energy sources instead of continuing a fossil fuel path, even with what has been promoted as ‘clean’ natural gas, would be by far the best choice for the Region in terms of costs, jobs, and GHG emission reductions. Investing in renewable energy largely outweighs economic, social and climate benefits of natural gas for energy generation

According to the Report, the Region is responsible for 8.1 percent of GHG emissions. In order to meet the Paris Agreement targets the exploitation of new oil and gas fields must stop now. However, it was pointed out that countries like Brazil, Argentina and Mexico are increasing their fossil fuel investments and exploitation, particularly in natural gas, while other countries in the region like Guyana are planning new natural gas infrastructure projects.

A switch towards a renewable power system would bring the Region a net benefit of US$1.25 trillion by 2050 compared to natural gas which the region would receive a net benefit of US$454 billion by 2050.

Renewable energy far outstrips natural gas in terms of job creation 3 million versus 167,000 respectively would be created by 2050. Another benefit of renewable energy is that it results in 80 percent lower GHG emissions by 2050 and it is 75 percent lower than the GHG that would be emitted as a result of natural gas projects.

Even if natural gas plants are used to replace coal and oil plants it still does not produce significant job generation in the power sector, nor does it generate the emissions reductions needed to achieve the goals of the ‘Paris Agreement’ and avoid deepening the climate crisis. There are several avoided costs mainly from diesel, coal and natural gas, as they are not used as an option for the transition.

The Government has been pilloried for moving ahead with the gas-to-energy project despite no new feasibility study for the US$2 billion gas-to-energy (GTE) project being developed by Government and its partner, US oil major, ExxonMobil.

In 2018, the Inter-American Development Bank (IDB) partnered with the State to conduct a feasibility study of the planned natural gas pipeline. The primary objective of the study, which was executed by Energy Narrative for US$70,000—an international entity that provides strategic market analyses and advice -was to determine the overall feasibility of transporting natural gas from offshore Guyana, building a Natural Gas Liquids (NGL) separation plant and a Liquefied Petroleum Gas (LPG) production plant to market the liquids from the natural gas stream, as well as building a new electricity generation station to use the remaining dry natural gas.

A table was used in that report that was sourced from ExxonMobil in which the oil company said the pipeline would cost US$478 million. Four years later, Exxon estimates that the structure could cost Guyana US$1.3 billion. Vice President Bharrat Jagdeo explained that the Government is currently doing estimates for the Natural Gas Liquids (NGL) Plant and the power plant to generate some 300 megawatts of electricity for the country. These two facilities can cost Guyana an additional US$700 million. Given this hefty increase in the project cost, stakeholders seek an updated feasibility study to prove the project’s viability.

SOLAR, WIND v. HYDRO

With the Region having some of the world’s best conditions in term of solar radiation and wind power, the Report pointed out that wind and solar technologies are winning the year-by-year race to be the cheapest sources of new electricity generation. UNEP pointed out that wind and solar make the renewable pathway a no-regret option. However, the Report showed that some renewable energy options are more cost-effective than others. If countries in the Region pursue wind and solar powered projects over hydro-powered projects, a lot of money can be saved in construction costs.

Wind and solar projects adapt more quickly to demand changes and the electricity production percentage from hydropower plants will decrease over-time. The share of electricity production from hydro-powered projects will decrease from 45 per cent in 2019 to 41 per cent by the mid-century.

New developments are primarily based on wind and solar-powered plants, along with geothermal plants in countries with reported potential, and small-scale hydro power plants (mainly run-of-river units).

Another factor is the transmission cost for hydro, wind and solar projects. The transmission cost means the amount spent in excess of the fixed costs of operation for the electricity to be taken from the power-plant to cities and other areas. Not all transmission costs apply equally for a given power plant in the model. A table showed that distributed solar projects do not have any transmission costs whereas wind and hydro projects have a 100 per cent transmission cost per plant.

A reference that can be made based on the UNEP report is between Guyana’s proposed US$700 million hydroelectric project, and Barbados US$100 million solar project. Earlier this year, the Government of Barbados signed a deal that will realise 178 MW of electricity using hydrogen and solar energy at a cost of US$100 million. Barbados is now leading the region with the announcement that it will be building the largest clean hybrid power plant in the region producing base load power for 16,000 Barbadian households from solar and locally produced green hydrogen.

Guyana’s US$700 million hydro-electric plant will supply some 165MW to the national grid.

The Amaila falls project introduced several years ago by the then Bharrat Jagdeo-led PPP Administration carried a higher price tag. When the PPP returned to power the project came back on stream. The contract was awarded to a Chinese Contractor but it was disclosed in July 2022, that the company was having difficulty raising the money for the project. Despite this, Government was not going to abandon the project. The Vice President said that solar is too expensive for Guyana. In June 2022 Jagdeo, who was one of six persons in 2010 to receive the UNEP Champion of the Earth, claimed that the generation of power in Guyana through renewable options such as solar, wind and even hydro is “very, very expensive” but the administration is adamant to proceed with the Amaila hydro falls project.

 

Minister endorses Stabroek Block local content Master Plan

October 28, 2022

As the Ministry of Natural Resources judiciously manages the oil and gas sector so that benefits may be derived for Guyanese, Minister of Natural Resources Hon. Vickram Bharrat M.P., approved the five-year Master Plans of Esso Exploration and Production Guyana Limited (EEPGL), Saipem Guyana Inc. and Gulf Engineering Services Guyana Limited (GESGI).

The five-year master plan is intended to provide the minister and the Local Content Secretariat with an understanding of the contractor, sub-contractor or licensee’s projected activities with regard to employment, procurement and capacity development of local suppliers. An amendment ensures that Guyanese suppliers of the petroleum sector are paid within thirty (30) to forty-five (45) days upon receipt of the correct invoice. This plan is enforceable as per the Local Content Act.

 At the October 26 signing, Minister Bharrat reminded the companies executives that many of the suppliers of Guyana’s oil and gas sector operate on a cash flow basis and that the amendment to include a reduced payment period will bode well for their growth and competitiveness. The Government is currently in discussion with the commercial banks to have contracts lodged as collateral. This would support access to capital for Guyanese businesses.

Speaking on behalf of ExxonMobil Guyana, President Mr Alistair Routledge commented, “The resource we are producing belongs to the people of Guyana and we are committed to ensuring that they benefit from it. Today’s event was another step in that direction since we believe that growing local content across the oil and gas sector can increase social and economic benefits for Guyanese in the short and long term.”

Hours before signing its Master Plan, the Ministry welcomed news of Exxon striking two oil discoveries in the prolific Stabroek Block. These increased petroleum resources to 40 discoveries since 2015, totalling more than eleven (11) billion oil-equivalent barrels.

Director of GESGI Mr Jodel Gopeesingh said his company is honoured to have its Master Plan approved and remains eager to foster and grow the capacity of nationals for the oil and gas sector.

“We believe that optimizing local content in our activities is one of the key elements to the success of the business and the operational goals of Gulf Engineering Services (Guyana) Inc. Our interest, at all times, has been to satisfy the needs and values of the Guyanese market, where we are able to add and create in the Guyanese economy by utilising the local human, natural resources and suppliers in the services we render to industry. It is our intention to… collaborate with other service companies in delivering projects successfully whilst maintaining our globally-recognised certifications.”

EEPGL, Saipem Guyana and Gulf Engineering join the list of 20+ oil and gas support companies that have had their Master Plans approved by the government. The Ministry and the Local Content Secretariat will engage all stakeholders to ensure that the objectives of the Local Content Act are achieved.