Exxon monitoring elections, coronavirus impact on operations

ExxonMobil is continuing to monitor the possible implications of the post-elections situation and the global coronavirus pandemic on its operations in Guyana.

Given the current political controversy over the declaration of results by the Guyana Elections Commission coupled with the international community’s posture that it would not recognize a government sworn in under these circumstances and that there must be a recount of the ballots, Stabroek News asked ExxonMobil about plans for moving ahead with its operations here and its reactions to these events.

The company was also asked about the global coronavirus pandemic and tumbling oil prices and the implications for this country, given that it had on Monday announced spending cuts.

“ExxonMobil Guyana is monitoring the situation closely and continues to evaluate our next best steps. At this time, our immediate priority remains the safety of our entire workforce. We are also actively seeking to play our role in limiting the spread of the virus and to this end, we have put several precautionary measures in place,” Janelle Persaud, Government Affairs Advisor for local Exxon affiliate Esso Exploration and Production Guyana Limited, told Stabroek News when contacted.

“ExxonMobil respects the election process in Guyana and is monitoring the situation. We believe that it is premature to comment on possible outcomes at this time,” she added.

Reuters on Monday reported that Exxon had said that it will make “significant” cuts to spending in the face of the unprecedented slide in oil prices due to the global coronavirus outbreak, which sent its shares to a 17-year low.

Other major oil companies have slashed costs amid falling demand and newly unbridled output by top producers Saudi Arabia and Russia. U.S. shale firms have outlined plans to cut expenses by 25% to 30% to cope with this year’s massive drop in oil prices and demand, the Reuters report also pointed out.

The Brent crude oil price for December, when production started in Guyana, was at a high of US$67.31 per barrel and in February the average was US$56 per barrel. But the figure dropped earlier this month and this week the price slumped dramatically into mid-US$30s after a row between OPEC and Russia.

By Monday, U.S. crude futures settled under $29 a barrel, down from $61 at the start of the year, which the report said has cut new drilling and led producers to seek price cuts from suppliers. “Weaker demand and rising supply could lead to a 6 million barrel per day surplus by April, further pressuring prices,” it stated.

But when the company held its Investor Day meeting on March 5, it said that it would stick to its plans “leaning in to this market when others have pulled back”. Then, ExxonMobil announced that it planned to spend between US$30 billion and US$35 billion a year through 2025.

And pointing to Guyana and giving perspective on its operations, the company had said that it maintains what it said two years that it had a 750,000 barrels per day gross target.

“I still stick to what I said two years ago …We are bringing 5 FPSOs in six years and we are bringing those on twice as fast as the industry has done and we are doing it in a basin and with a country that has no hydrocarbon experience. And at the same time, as we are developing we exploring and producing. It is important that we take those lessons and those learning from the development program,” the CEO said.

“The reality is we have learnt so much from what is an unprecedented project … and we owe it to the investors, the shareholders and to the country to get the maximum out of that resource base,” he said.

Not affected

And while the company on Monday said that it was “evaluating all appropriate steps to significantly reduce capital and operating expenses in the near term” and that it remained “focused on being a safe, low-cost operator and creating long-term value for shareholders,” Guyana’s operations are not likely to be affected by the decisions.

This newspaper understands that work will forge ahead in the Stabroek Block.

Meanwhile, Hess, a partner in the Stabroek Block, yesterday also announced cuts to its overall budget but played up its Guyana investments, saying it would not be affected.

It announced a revised US$2.2 billion capital and exploratory budget for 2020, a

US$800 million reduction from the previous budget of US$3 billion.

A statement on the company’s website pointed to the cuts while also adding, “The Company also announced a new $1.0 billion three-year term loan agreement. These actions further strengthen the company’s cash position and financial liquidity in response to the sharp decline in oil prices. “With 80% of our oil production hedged in 2020, our significantly reduced capital and exploratory budget and our new three year loan agreement, our company is well positioned for this low price environment,” CEO John Hess said.

“Our focus is on preserving cash and protecting our world class investment opportunity in Guyana,” he added.

Hess said the reductions to the company’s 2020 capital budget will be primarily achieved by shifting from a six rig program to one rig in the Bakken, which is expected to be completed by the end of May. Most discretionary exploration and offshore drilling activities, excluding Guyana, will also be deferred.