Latest update March 22nd, 2023 12:59 AM
Feb 05, 2023 News
– Hess tells shareholders not to worry,Stabroek Block contract & sweet crude will be shareholders’ saving grace
Kaieteur News – ExxonMobil Corporation confirmed last month that its Uaru project in the Stabroek Block is projected to cost a whopping US$12.7B. The eye-popping estimate recently caught the attention of shareholders for Hess Corporation which is a 30 percent partner in the block.
During Hess’ earnings call for the fourth quarter of 2022, Hess officials faced questions on the impacts of the high project cost. Shareholders asked what percentage of the cost was due to inflation. They also sought to learn whether this was the final figure and whether this can be considered the baseline for similar projects in the future.
Hess’ Chief Operating Officer (COO), Greg Hill did not answer most of the questions. He was keen to note however that the US$12.7 billion is consistent with the estimate that the operator of the block (Exxon’s subsidiary—Esso Exploration and Production Guyana Limited) submitted as part of the Environmental Impact Assessment (EIA) to the Government of Guyana. Hill cautioned that the cost is going to be finalized as the project progresses.
“Once we sanction it, we will give the final details. But in any case, the final cost of Uaru reflects a couple of things. It reflects current market conditions and then also additional scope. One example is, is the Subsea Umbilicals, Risers and Flowlines (SURF) is twice as big as (those ordered for the) Yellowtail project, for example,” Hill said.
He noted that the SURF equipment needed is way more than those ordered for the Yellowtail Project since it connects a number of reservoir systems that are further away from each other. Hill added, “But we will give you a final colour on that once the project is finally sanctioned.”
To temper the concerns raised about the cost of the Uaru Project, Hess Corporation’s CEO John Hess was keen to remind about the incredible economics of the project due to the fact that it is tied to the 2016 Stabroek Block Production Sharing Agreement (PSA).
That contract, as he has noted on several occasions, allow for fast recovery of oil expenses. It is also without any ring-fencing provision. This gives Hess and partners the freedom to use revenues made from the Liza Phase One and Two Projects to develop others.
Hess said, “What’s also important is Uaru still offers some of the best returns in the industry. So even though there is cost inflation with the resource we’re developing, the fact that it’s low cost, low carbon, it still offers some of the best returns in the industry.”
Hess officials noted that while the project is 30 percent larger than the Yellowtail in size and costs are projected to be higher, the nature of Guyana, that is to say its sweet oil as well as its favourable contract terms, will ensure the companies can ride any storm that comes.
Kaieteur News previously reported that the Uaru Development Project will tie in discoveries at the Uaru, Mako and Snoek oil-rich fields with the potential to develop other resources within the Licence area.
A preliminary schedule anticipates that FPSO and other fabrication and installation works will begin in 2024 following the completion of engineering and will take approximately three years. Development well drilling may also occur during this period. Production operations are expected to begin in 2027 and will continue for at least 20 years.
With respect to the FPSO, EEPGL’s Environmental Impact Assessment states that oil production will average at 250,000 barrels of oil per day. It was keen to note that peak rates may be higher during the lifetime of the project, depending on multiple factors such as reservoir pressure, number of wells, equipment reliability etc.
It states at page 146, “Currently, the FPSO basic design has an upper production limit of 263,000 BPD (42,080 m3) peak oil production rate. For the purposes of the EIA, production up to 300,000 bpd is considered to assess potential impacts from the project and cover potential production optimization after facility start up. If during the detailed design stage or during production operations an opportunity to expand the upper production limit arises, the project will document the evaluation and justification and an updated upper production limit will be available.”
It was also noted that the project will be producing 540 million standard cubic feet of gas per day.
During long-term production operations, the in-country, direct offshore workforce will peak at around 100 to 160 people during periods of higher maintenance activity and during offloading of an FPSO.
The EIA also states that during periods of regular operations, the workforce requirement on an FPSO is estimated to be on the order of 90 to 100 people.
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