$53 Billion Guyana Oil Clash Heads to London Tribunal

ENB Pub Note: We will cover this issue on Tuesday’s Energy News Beat daily show. The history and information on Guyana’s oil reserves are on top, followed by the Oilprice.com information on the bid for Chevron to take over Hess’s Guyana asset.

• Estimated Volume: As of August 2024, Guyana’s proven oil reserves are estimated at approximately 11.6 billion barrels of oil equivalent, with some sources citing at least 11 billion barrels as early as 2022.
• Key Discoveries: The first major oil discovery was made by ExxonMobil in 2015 at the Liza-1 well in the Stabroek Block, followed by over 30 additional discoveries in the same block. Notable discoveries include Liza, Payara, Yellowtail, and Bluefin.
• Quality: The oil found in Guyana, particularly in the Liza field, is medium-density and sweet, with an API gravity of 31.9 degrees and 0.59% sulfur content, making it highly desirable due to lower refining costs for low-emission fuels.
• Global Ranking: Guyana ranks 17th globally in terms of proven oil reserves, a remarkable feat for a country with a population of less than 1 million.
• Potential: The Guyana-Suriname Basin’s total petroleum potential may exceed the U.S. Geological Survey’s estimate of 33 billion barrels, given recent discoveries suggesting even larger volumes.

• Estimated Volume: Guyana’s natural gas resources are estimated at around 17 trillion cubic feet as of 2024, though these are largely untapped and associated with oil production.
• Current Utilization: Most natural gas produced is reinjected into wells to maintain oil production pressure or used as on-site fuel. However, there are plans to develop gas infrastructure, including a proposed pipeline to bring associated gas onshore for processing and potential export as liquefied natural gas (LNG).
• Future Plans: The government is exploring gas monetization for power generation and industrial use, with a national strategy to supply gas to industries like petrochemicals and LNG export markets. A gas-to-energy project is under development, aiming to double Guyana’s energy output and reduce electricity costs by 50%.

• Stabroek Block: Operated by ExxonMobil (45%), with partners Hess Corporation (30%) and CNOOC (25%), this block is the primary source of Guyana’s oil and gas reserves, containing an estimated 11.6 billion barrels of oil equivalent.
• Production Capacity: Current production is approximately 660,000 barrels per day (bpd) as of 2024, with plans to reach 1.3 million bpd by 2027 and potentially 1.7 million bpd by 2035. This would position Guyana as the fourth-largest offshore oil producer globally, surpassing countries like Qatar and Norway.
• Floating Production, Storage, and Offloading (FPSO) Vessels: Three FPSOs (Liza Destiny, Liza Unity, and Prosperity) currently operate, with a fourth (ONEGUYANA) planned for the Yellowtail project by 2025. Additional projects like Uaru and Whiptail are slated for 2026 and 2027, respectively, each adding 250,000 bpd.
• Other Blocks: Beyond Stabroek, exploration continues in blocks like Corentyne, where discoveries like Wei-1 indicate similar high-quality crude. Eight new blocks were awarded for exploration in 2024.

• Economic Impact: The oil boom has transformed Guyana’s economy, making it the fastest-growing globally, with GDP per capita rising from $11,000 in 2015 to $18,342 in 2022. Government revenues are projected to reach $7.5 billion annually by 2030 and peak at $16 billion by 2036.
• Geopolitical Issues: Venezuela’s claim over the Essequibo region, which includes parts of Guyana’s offshore oil fields, poses a risk. The International Court of Justice (ICJ) is addressing this dispute, with a 2023 ruling maintaining the status quo.
• Resource Curse Concerns: There are worries about the “oil curse,” with reports suggesting Guyana may have lost up to $55 billion in potential revenue due to contracts favoring ExxonMobil. The government has established a Natural Resource Fund to manage oil proceeds transparently.

• Climate Paradox: Guyana aims to use oil revenues to fund climate resilience projects, such as seawall reconstruction, while remaining carbon-negative due to its vast rainforests. However, the 4.7 billion tons of potential carbon emissions from its oil reserves raise environmental concerns.
• Diversification: The government is investing in infrastructure (hospitals, schools, highways, and a deep-water port) and renewable energy (solar farms) to avoid over-reliance on oil.

From Oilprice.com

• Chevron’s $53 billion bid for Hess faces arbitration as ExxonMobil and CNOOC claim a contractual right to block the deal.
• The outcome is pivotal for Chevron, which urgently needs Hess’s Guyana assets to reverse its declining reserves.
• A tribunal ruling is expected by Q3 and could shift the geopolitical balance of oil power in the Western Hemisphere.

A high-stakes arbitration kicks off Monday in London that could make or break Chevron’s $53 billion bid to acquire Hess Corp—and with it, a coveted 30% stake in Guyana’s booming Stabroek Block. ExxonMobil and CNOOC, Hess’s partners in the block, claim they have a right of first refusal on that stake, arguing the Chevron-Hess deal triggers the clause. But Chevron and Hess counter that the right doesn’t apply to full corporate mergers. The outcome rests on contractual fine print, but the implications are massive: Guyana’s Stabroek Block holds over 11 billion barrels of oil equivalent, and output is projected to double by 2030.

For Chevron, this is a make-or-break moment. The company’s reserves replacement ratio (RRR) hit -4% last year, its lowest in a decade. It desperately needs Hess’s Guyana asset to boost its RRR and plug a growing gap in its portfolio. CEO Mike Wirth has already poured over $3 billion into Hess stock and positioned the company to close the deal quickly—if it wins. If not, Chevron walks away, leaving Exxon and CNOOC free to increase their control over one of the world’s hottest oil plays.

The arbitration, led by the International Chamber of Commerce, is expected to move faster than typical, with a ruling anticipated by Q3. Traders are betting big on a Chevron win—about $10 billion worth of Hess shares have been scooped up by merger-arb funds expecting the deal to close, according to Morgan Stanley’s head of Special Situations, Matthew Mitchell, and cited by Bloomberg.

The outcome hinges on the tribunal’s interpretation of a joint operating agreement drafted more than a decade ago.

If Chevron loses, the consequences will ripple far beyond one failed deal, with Exxon largely expected to consolidate its dominance in Guyana. Chevron, meanwhile, would be left scrambling for another big-ticket asset to shore up its future. The tribunal’s ruling could redefine the balance of power in the Western Hemisphere’s most promising oil basin.

By Julianne Geiger for Oilprice.com