Once Capital Costs are recovered by Exxon, the flow of oil money will accelerate!

May 19, 2023 Letters

---

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 re-negotiation 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 purpose of this analysis, I have utilized data gathered for Lisa Destiny FPSO Phase I and Lisa Unity FPSO Phase 2. The findings here are only applicable 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 realized. 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 1 Destiny 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 2 Unity 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 (2^nd, 3^rd, 4^th Qtrs.) amounting to $607.65 million. In 2023 (1^stQtr.), 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 funds as of March 31, 2023, was $(US) 1.465 billion ($US 2.272 billion- $US 807.65 million) (BoG Quarterly Report).

As of March 31,2023, Guyana’s total profit oil (12.5% of revenues) was $1.961 billion. Exxon’s cost recovery (75%) was 6 times more ($US 11,767,429,5) than Guyana’s profit oil. The CAPEX cost recovery was (US) 5.178, while the OPEX cost recovery was $(US) 6.589. As of 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 $(US) 2.363 billion. At the same level of oil production for 2024 and at the same price ($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 $(US) 4.333 billion ($US1.857+$US2.476). When this CAPEX recovery cost is combined with the pre-April 2023 CAPEX recovery of $5.178 billion, the total CAPEX recovery as of 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-$US4.333 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 level 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

---

• CAPEX, Dr Tara Singh, Exxon, financial, money

---