Introduction
Today’s column shifts focus from determining direct impacts on oil production, price, government revenue and their consequential effects on GDP arising from the 2020 general crisis (as I have portrayed this process) on Guyana’s infant oil and gas sector towards gauging impacts, going forward, on the leading transnational producer grouping in this sector: ExxonMobil and partners.
The primary reason for pursuing this topic is to acknowledge that Guyana’s oil and gas resources ownership and their operational control lie in two separate hands. Indeed, the resources are regulated under a Production Sharing Agreement (PSA). That PSA enshrines within the sector the recognition of the aims and objectives of the Parties to it, differing. This allows for incongruent responses to the crisis.
Additionally, readers must bear in mind that ExxonMobil and partners have been posting on its website since 2018 a mid-2020s target of 750,000 barrels of crude per day as the present horizon-deadline for the group’s current endeavors.
The Producer Group: Impacts
Guyana’s sole crude oil producer and exporter grouping, ExxonMobil and partners, also leads exploration. Indeed, the group leads in hydrocarbons development generally: project preparation and implementation; along with distribution of earned profits under the PSA. To recall, Esso Exploration and Production Guyana, Ltd (ExxonMobil – 45 per cent) is the group’s lead Operator. Its partners are Hess Guyana Exploration Ltd (30 per cent) and CNOOC Nexen Petroleum Guyana (25 per cent). They constitute, as of now, the only producer of crude oil.
To date, the Group’s production has been confined to its Stabroek Block holdings, where 18 discoveries have been made. The first discovery for 2020, Uaru, has not yet been added to its calculation of recoverable resources. So too the 17th and 18th have not been added (Redtail 1 and Yellowtail 2). However, the 15 discoveries at December 31, 2019 have estimated recoverable resources of at about 9 billion barrels of oil equivalent (BOE). As of writing, there is no other imminent producer group or groups. Until recently, the Tullow Exploration Group had come closest to that possibility, until it ran into problems in 2019. In March 2020, its Executive Chairperson confessed that: “Poor discoveries in Guyana served as further setbacks.”
Current data from the parent companies in the lead producer grouping reveal that, for all its members Guyana’s offshore finds remain essential to their future profitability. Thus, ExxonMobil, in response to the 2020 general crisis, has cut its global capital expenditure budget by 30 per cent and its cash operating expenditure budget by 15 per cent. This is in response to a share price decline in Q1 2020 of 14 cents, compared to a gain of 55 cents per share in Q1 2019.
Further, the parent company has recorded in 2020, its first quarterly deficit, in over three decades. It has disposed of billions of US assets to focus on Guyana. It has cut thousands of jobs worldwide; reported as 15 percent of its global workforce. These are placing immense burdens on its shareholders and there are signs of revolt
The parent companies of the two other partners have fared somewhat better. And, both continue to indicate the prioritization of Guyana’s offshore discoveries in their future profitability. Thus, Hess has cut its capital and exploration budget going forward by nearly 40 per cent, and taken a US$1 billion three-year term loan, but intends to maintain spending on its profitable priorities in the Bakken and Guyana. Similarly, CNOOC cut its global capital expenditure by about 10 to 15 per cent in 2020, after coming off an “excellent year” in 2019. Similarly, it prioritizes its Guyana holdings going forward.
Short to Medium-Term Impacts
As I contemplate the short to medium term, I am confident of two predictions. The first is that crude oil market outcomes will remain exceptionally fluid and uncertain for all the reasons indicated in preceding columns. Second, over the short to medium-term, the collateral economic impacts of the COVID-19 pandemic will dominate the performance of the crude oil market. Regrettably, those effects are too complicated to measure confidently, because the outcome of the pandemic rests on uncertain and unpredictable developments, like the successful deployment of effective vaccines; developing COVID-19 specific therapies; and, mutations of the virus.
As I prepare this column, I am struck by the widely different positions seasoned analysts and specialists in the field of energy (crude oil marketing) take concerning the immediate to near term future of the 2020 general crisis. Some see the future heading towards a rapid structural shift in the global energy mix and the swift demise of the crude oil sector as we know it today. In support of this point of view, they point to the fact that, the fastest rate of decline in the United States oil rigs count, has occurred between March 13 and May 23, 2020. In a period of about 6 weeks, about two-thirds of the United States’ oil rigs were removed from production!
At the other extreme are those analysts who predict an early substantial recovery of the crude oil market; as early as before the end of 2021! Their prediction is based on several occurrences: namely, 1) the noticeable improvement in storage capacity for crude oil; 2) the steady growth in gasoline demand as lockdown conditions are progressively eased worldwide; 3) preparations already in train for the re-opening of travel, airlines, hospitality, leisure, sports, restaurants, seasonal services, medical services, education and other similar employment intensive sectors in the major global economies; and, 4) the prolongation of Government safety-net spending on a global scale.
Given all the above, the consensus expectation is for a fairly rapid revival of global energy demand, hopefully, in the second half of this year, but perhaps more certainly in the third quarter.
Conclusion
After studying the available data, I conclude firmly that the target set by ExxonMobil and partners back in July 2018 to produce 750,000 BOE per day by 2025 is achievable. To cater for present challenges, the grouping has shifted its target date one year forward to 2026. That may be prudent, but the present state of play has not generated, at this point in time, a confident rejection of full ramp-up of crude oil production by the mid- 2020s.
