May 02, 2021 News
Kaieteur News – ExxonMobil Guyana has recommenced negotiations with SMB Offshore for the purchase of the Liza Destiny, Floating Production Storage and Offloading Vessel (FPSO), in light of better cash flow returns from the operations in the Stabroek Block.
The disclosure was had this past week, when the company’s Stabroek Block partner, Hess Corporation, gave investors an update on the operations during the company’s first quarter earnings call.
This represents an about-turn on the previously publicly stated position in February when SMB Offshore’s Chief Finance Officer (CFO), Douglas Wood, had told shareholders, “…we had commenced discussion with the client regarding the leases of FPSOs in Guyana which could have a significant impact on the timing of our future cash flow.”
He noted at the time however, that because of these discussions, “we no longer assume purchase of the Liza Destiny in 2021 and we have reverted to reflecting its contract duration to ten years.”
This position has since changed however, at least according to Hess’ Chief Financial Officer, John Riley, who during the earnings call this past week disclosed that the cash flow positions for the operations have recovered and are projected as such, that right now, ExxonMobil is in discussion with SBM; “they’re having commercial discussions on the purchases of that—the FPSOs—it is ongoing.”
According to the Financial Officer, “the oil price itself doesn’t really have a factor in there but they’re going through these discussions.”
He said, “…we expect to have this information later in the year and we’ll provide the guidance on the timing of the FPSO purchases when we get that information.”
SMB Offshore in its February update to investors this year, had reported on the stalled talks and said “construction activity on the FPSOs Sepetiba, Unity and Prosperity has led to a growth in the lease and operate part of the balance sheet” and that its “construction project debt is directly linked to these projects.”
As such, “lease financing will become non-recourse once the projects reach the operating phase.”
The SBM Finance Officer—Woods—at the time noted, “At the end of the year, the split between non-recourse operating project debt and construction project debt was approximately 70/30.”
The Finance Officer lamented at the time that the company’s backlog increased from US$20.7 billion to US$21.6 billion with the key increases to the backlog relating to projects in Guyana. He noted too, that the contract for the Prosperity FPSO is a contractual two-year BOT (Build Operate Transfer) project, “so it adds to the build, lease and operate backlog in the first two years of operation, with the purchases seen in orange adding to the BOT backlog in 2026.”
As a result, the companies decided to no longer assume purchase of the Liza Destiny in 2021, and that “we have reverted to reflecting its contract duration to ten years.”
Accordingly, pending conclusion of discussions with the client—ExxonMobil—and “of course project lenders, FPSOs Unity and Prosperity are maintained per their contracts with the assumption of a purchase at the end of a two-year lease period.”
It was projected at the time that “we were having discussions about the leases we need to see, where they result, I think over all relative to the backlog I mentioned but we have still, of course, the ability to sell equity but I think what I would also highlight in terms of managing the overall cash flow is the refinancing that we have just done.”
Meanwhile Hess in its update this week noted that with the turnaround in fortunes, the projections in the Stabroek Block, “the first thing we’ll do is increase our dividend.”
The Hess official used the occasion to reiterate, “as our cash flows continues to grow with Payara coming on, the Yellowtail and then like we said, we expect now, up to 10 FPSOs; with significant cash flow growth, we will begin to do opportunistic share repurchases after the dividend increase.”
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