Exxon says it can take investment elsewhere in company’s portfolio if Payara deal unfavourable

…comments will not change Govt’s decision to review – senior Govt official

As the Government reviews the Payara Field Development Plan (FDP), ExxonMobil’s Country Manager Alistair Routledge has said the company can take its investment money elsewhere, if it does not get the deal it wants.

This was communicated during a conference call between Routledge and members of the media, wherein he stressed the need for maintaining the sanctity of the much-criticised contract that ExxonMobil signed with Guyana’s former A Partnership for National Unity/Alliance For Change (APNU/AFC) Government back in 2016.
“We have had little discussion with the Government. They have said they are reviewing the contract, not renegotiating it. And I think that’s really important for the country long-term, because internationally, contract sanctity is very important,” he said.
“If we enter into contracts with a country and they are changed down the road, then it’s very difficult for us to make commitments on projects that typically have 20-, 30-year investment lives. So how can we make those investments if we’re unsure whether the terms will change?” Routledge added during the conference.
On the matter of the production-sharing agreement (PSA), Routledge denied that the contract is skewed in Exxon’s favour. This is despite the generous terms of the contract: guaranteeing that Guyana pays Exxon’s taxes; that expenses incurred during development are treated as cost oil; and that Guyana will get a 50 per cent share of profit oil but a mere two per cent royalty.
“I think our interests are aligned. If the contract was more challenging for us, then, to be honest, I don’t think (that) in this environment, investment dollars would be coming to Guyana. It is a global business, and specially in these days where commodity prices have fallen, the investment dollars would flow to where it is competitive.
“And as I mentioned earlier, the Guyana portfolio is one of the better opportunities for us, but it’s not the only one. And indeed, if we don’t get the agreement as we’re looking for in Payara, the investment money will go elsewhere on ExxonMobil’s portfolio,” Routledge said.

Fully committed
In a subsequent release on Wednesday evening, ExxonMobil said Routledge was asked by media about delays for the approval of its Payara project which is currently under review by a Government-appointed panel. Routledge, the statement said, noted that Guyana was a top priority in ExxonMobil’s development plans, and that Payara was an important project in its Guyana portfolio.
“He noted that there are benefits that a steady and strategically phased approach to developing the oil resources can have for Guyana. Some media reports have taken out of context his statements that the funds currently not committed could be invested elsewhere should the Payara project approval not be forthcoming,” the ExxonMobil statement added.
The company said Routledge was referring to the impact further delays could have amidst the current weak oil market conditions, due to the global pandemic that has tightened available funding for projects worldwide.
“We and our industry are facing unprecedented market challenges. We are fully committed to Guyana; have been here for decades, despite numerous risks, and when other companies left. We have (worked), and will continue to work closely with the Government to develop the country’s resources for the long-term benefit of the people of Guyana. We strive to be transparent in our dialogue, and want to work to progress positive development in the best interests of all stakeholders,” the statement quoted Routledge as saying.
It added: “The timely approval of additional proposed projects, including Payara, will ensure that the local workforce and the utilisation of local suppliers will continue to grow. ExxonMobil’s development concept for its discoveries in Guyana meets our objective to maximise value for our partners, which includes the people and Government of Guyana.
“Key enablers have been the support from Government and the people of Guyana and the dedication and hard work by contractors and ExxonMobil employees. We look forward to continuing to work together to safely and responsibly develop Guyana’s natural resources.”

But Routledge’s comments come at a precarious time for the company. It has made 16 oil finds offshore Guyana, and those have more than six billion recoverable barrels of oil equivalent. But with the COVID-19 pandemic, oil prices have plummeted, and the company has been forced to downsize its operations.
In an unprecedented move on Monday, it was announced that Exxon would be delisted from the Dow Jones Industrial Average. This would mark the first time in 92 years that Exxon has not been a member of the Dow Jones.
Meanwhile, a senior Government official on Tuesday told this publication that Routledge is speaking on behalf of his company’s shareholders, and therefore his comments cannot alter the Government of Guyana’s decision to review the project in a timely manner.
In April, ExxonMobil had said that Guyana’s oil reserves are an integral part of its growth plans.
Chairman and Chief Executive Officer of Exxon, Darren Woods, had said developing Guyana’s offshore deepwater discoveries would be an important aspect of Exxon’s long-term growth plans.
In July, Exxon reported an expected $2.63 billion second-quarter loss, according to Refinitiv Eikon data, on sharply lower prices and weaker production. This, according to a Reuters report, is the first back-to-back quarterly losses in at least 36 years. Shares are down 35% so far this year, as the coronavirus pandemic has crushed fuel demand.

PSA
The PSA between Guyana and Exxon’s local subsidiary, Esso Exploration and Production Guyana Limited, was signed on October 7, 2016. The former Government was heavily criticised by civil society and experts for its generous terms, with international watchdog Global Witness releasing a report which found that Guyana lost billions due to the poor representation the country received from the then Government in its negotiations with ExxonMobil.
ExxonMobil and its partners in the Stabroek block were able to secure exemptions from paying corporation, excise or value-added tax on their earnings from petroleum. Article 15.4 of the renegotiated contract also provides for the Government itself to pay the company’s income tax.
To facilitate this, the oil company has to submit tax returns to the Government.
Article 32 stipulates that Government cannot modify the contract or increase any fiscal obligation the company has. This therefore puts a cap on the taxes, royalties, duties, fees or charges outlined in the contract.
Government also has to compensate the operator if a change to existing laws causes loss of revenue for the company.
The 50 per cent profit oil and two per cent royalty are already below international average, but during the cost recovery phase of oil production, Guyana will only see 14.5 per cent of revenue until Exxon can recoup its initial investment. Indeed, Exxon has already laid out a cost recovery figure of US$460 million in its PSA, a figure yet to be fully audited.

Payara
Payara, which was discovered in 2017, is Exxon’s third potential development project within the Stabroek Block, after Liza Phases 1 and 2. The discovery well was drilled in a new reservoir, encountering more than 29 metres of high-quality oil-bearing sandstone reservoirs.
The Payara Development Plan includes a floating production, storage and offloading (FPSO) vessel named Prosperity. It is expected to produce 220,000 barrels per day, supporting up to 45 wells, including production, water injection and gas injection wells.
Under the former Government, the Energy Department contracted Bayphase to conduct a review of the FDP in December of 2019. The review was completed, but in the wake of the controversies that followed the March 2 2020 elections, little progress was made on approving the plan. Exxon’s Final Investment Decision (FID) hinges on gaining approval for the development.
Exxon has complained that further delays in granting approval for the project could result in less revenue for Guyana after the project starts up in 2023. But experts have argued that unless Exxon is able to give proper environmental and local content assurances, and even improve the terms of its contract with Guyana, approval should be withheld.
As such, the current Dr Irfaan Ali-led Government tapped into an existing Canadian grant to recruit independent experts who would review the work done on Exxon’s Payara project FDP, before granting final approval for the project.
Those experts include Allison Redford, a former Attorney General and Premier of Alberta, Canada, who has worked with other groups around the world to conduct reviews similar in nature. It is expected that their work will be completed by this weekend. (G3)