Dear Editor,
Two quick thoughts on the Chevron purchase of Hess Corp’s share in the Stabroek Block
1: Will Chevron honour the remainder of the carbon credit purchase agreement that Hess made with Guyana?
As I remember it: In 2022, Guyana got verification of 33 million tons of sellable carbon credits for (retrospective five years’ worth) of its rainforest carbon sink. And Hess agreed to purchase US$750 million worth of it over ten or eleven years. The first transaction occurred late in 2022 and Hess paid Guyana US$150 million. I don’t know at what price per ton. But I do know that the price has dropped significantly this year, and the last number I heard, (subject to verification), is around US$5.00 per ton. If that is right, then the entire 33 million tons is worth only US$165 million today.
Carbon credits sales have always been iffy. Many persuasive people think that it is a diversion from the real issues. (For full disclosure, one of my companies sold carbon credits about 15 years ago on the Chicago Climate Exchange, until the Exchange closed in 2010 for lack of buyers’ interest. Our remaining credits went unsold and they eventually expired.)
I know that Shell does some carbon trading, mostly in Europe, where the market is much stronger but even there, credits based on “Nature’s workings” earn significantly less per ton.
Is the Hess carbon credit purchase agreement guaranteed? Or will Chevron seek to “renegotiate” that deal? Don’t get me started!
2: So since Chevron is buying Hess Corp for US$53 billion, how much is the imputed value of Hess’ share of the Stabroek block? And the value of the entire Stabroek Block?
First, consider that we are doing this on the back of an envelope and we have both had our fill of duck curry and El Dorado (you) or coconut water (me).
Last year, about ten percent of Hess Corp’s revenues came from oil production in Guyana. Remember, they have oil and gas production is several locations. And Chevron is acquiring all of them. Guyana is easily its brightest prospects for the next thirty years. I saw a weighted value ascribed to Guyana yesterday morning, where a financial outfit estimated that the Stabroek block contributes 24% of the value of Hess Corp’s current worth. Let’s say it is 25%. So a quarter of US$53 Billion is roughly US$13 Billion. Looks low to me. Let’s say then, that they are shortchanging Guyana and Guyana’s worth is at least 50% of what Chevron is paying for all of Hess’s assets. So now, Hess’ share of the Stabroek block is worth US$27 Billion.
What then is the imputed worth of the whole Stabroek block to any imaginary potential buyer? Hess owns 30% of the original EEPGL operation. But Guyana is guaranteed at least 12.5% of sales as its profit share. (Yes, yes, I know, it will be significantly higher towards the back end of the term of the agreement.) So for the next few years, the EEPGL triumvirate gets 87.5% of the operating revenue.
Hess’ 30% translates to 30% of 87.5 or 26.25% of the Stabroek block once you count Guyana in!
Using the US$27 Billion valuation for Hess/Chevron transaction, I impute a current valuation of around US$100 Billion for the entire Stabroek block. If you believe that Hess’ share of the Stabroek accounts for only 25% of the price that Chevron is paying, then the imputed value drops to around US$50 Billion.
Don’t go anywhere near that fence!
Yours faithfully,
Tulsi Dyal Singh, MD
