Once capital costs are recovered by Exxon, the flow of oil money will accelerate!

Dear Editor,
While some of us are engaged in various aspects of the Exxon contract, such as championing the need for adequate insurance/assurance coverage, environmental concerns, and the renegotiation of the contract for better financial and other terms, my attention was also attracted to the impact of the cost recovery method on Guyana’s share of profit oil. The faster Exxon could recover its exploration and development (CAPEX) costs, the sooner Guyana would enjoy a higher share of profit oil, and so too would Exxon. For the purpose of this analysis, I have utilised data gathered for Lisa Destiny FPSO Phase I and Lisa Unity FPSO Phase 2. The findings here are applicable only to these two projects.
The capital cost, CAPEX, for Lisa Phase I and Lisa Phase 2 was given as US$ 9.7 billion (US$ 3.7 billion for Lisa I and US$ 6 billion for Lisa 2). Using the available data, the analysis shows that by December 31, 2024, the CAPEX recovery cost for both Lisa 1 and Lisa 2 would have been realised. After then, Guyana’s, as well as Exxon’s, share of profit oil will more than double: from 12.5% to 29% of revenues.
Some preliminary comments are appropriate. Lisa Destiny 1 FPSO began producing oil in December 2019. In 2020, its average monthly production level was 2,266,484 barrels, compared with 3,556,146 barrels per month in 2021 (a substantial increase of 57%). When Lisa Unity 2 FPSO commenced production in February 2022, the average combined monthly oil production for both projects was 8,931,114 barrels. Payara’s Prosperity FPSO and Yellowtail’s One Guyana FPSO are scheduled for production by 2024-2025. By then, the combined oil production for the 4 FPSOs in the Stabroek Block is projected at 800,000 barrels per day.
Up to March 31, 2023, the total oil production was 205,759,098 barrels. The total revenues earned by Guyana up to then was US$2.272 billion. The breakdown is shown in the table.
Of this amount (US$ 2.272 billion), there were four drawdowns from the Natural Resources Fund (NRF) dedicated to budget support. In 2020 and 2021, there was no withdrawal from the NRF. In 2022, there were three withdrawals (2nd, 3rd, 4th Qtrs.) amounting to $607.65 million. In 2023 (1st Qtr.) another withdrawal was for $200 million, making the total withdrawals US$ 807,650,000 as of March 31, 2023. This means therefore that the balance in the NR Fund as at March 31, 2023, was US$1.465 billion (US$ 2.272 billion minus US$ 807.65 million) (BoG Quarterly Report).
As at March 31, 2023, Guyana’s total profit oil (12.5% of revenues) was $1.961 billion. Exxon’s cost recovery (75%) was 6 times more ($US11,767,429,5) than Guyana’s profit oil. The CAPEX cost recovery was US$5.178 billion, while the OPEX cost recovery was US$6.589 billion. As at March 2023, the outstanding CAPEX cost recovery was therefore US$4.522 billion.
If monthly oil production beyond March 2023 maintains the 2022 monthly average of 8,931,114 barrels, and assuming a cost of barrel at US$70 (US EIA forecasts a price of US$78.65 in 2023 and US$74.47 per barrel in 2024), CAPEX recovery for 9 months in 2023 is projected at US$1.857 billion, while OPEX is projected at US$2.363 billion. At the same level of oil production for 2024, and at the same price of US$70 per barrel, CAPEX recovery is projected at US$2.476 billion, compared with US$3.151 billion for OPEX.
From April 2023 to December 2024 therefore, CAPEX recovery cost has been projected at US$4.333 billion (US$1.857+US$2.476). When this CAPEX recovery cost is combined with the pre-April 2023 CAPEX recovery of $5.178 billion, the total CAPEX recovery as at December 2024 is projected at US$9.511 billion. The outstanding CAPEX cost recovery (12/24) is therefore projected at US$189 million (US$ 4.522 billion minus US$4.333 billion). (The ratio of CAPEX to OPEX recovery cost that was applied to years 2022-2025 was assumed to be the same as that of 2021).
Once the CAPEX cost is recovered, Guyana’s, as well as Exxon’s, share of profit oil will more than double: from 12.5% to 29%. If production and price levels remain at 2023 levels, for example, Guyana’s share of profit oil for FPSO Lisa 1 and FPSO Lisa 2 is projected at US$2.176 billion in 2025. If the two other FPSOs (Prosperity and One Guyana) are brought into production in 2025, Guyana’s share of profit is likely to more than double this amount.
A cautionary note: Depending on the rise and fall of oil production and prices, the CAPEX recovery period for Lisa 1 FPSO and Lisa 2 FPSO could either be earlier than December 2024 or later.

Sincerely,
Dr Tara Singh