OPEC, it has been reported is trying to lure Guyana across to join the energy cartel. This is a significant play for new oil production but also on the geopolitical front. Energy giant ExxonMobil (XOM), the largest U.S. oil company, and its partners having invested over $40 billion in 5 Guyana projects. XOM expects to produce over one million barrels a day by the end of the decade. Exxon last earnings reported production increased by nearly 300,000 barrels of oil equivalent a day driven by projects in Guyana and the Permian.
With KSA and Russia saddled up together, Guyana is a significant play for both OPEC and the US. OPEC has eyes on XOM’s higher production from the South American nation which is part of the company’s strategy to diversify oil production.
OPEC craves new blood, as it also moves to offer Malaysia and Azerbaijan full membership in the cartel. The difference is both countries oil productions are stagnating and low. Malaysia has shown its loyalty by shifting Russian oil through it to China and India. Is this loyalty or simply playing the role of oil trader?
Exxon for it’s part, is in a position of strength and is crucial to American energy independence and export income. At the end of first-quarter 2023, ExxonMobil’s total cash and cash equivalents were $32,651 million, and long-term debt amounted to $39,150 million.
The Houston based giant reported better than expected first-quarter earnings Friday. XOM produced more oil to overcome lower energy prices. ExxonMobil reported adjusted earnings of $11.43 billion or $2.83 a share, ahead of a consensus $2.60 on FactSet and up from a year-ago profit of $5.48 billion, or $1.28 a share. Revenue fell 4.8% to $86.6 billion, but that also beat estimates.
ExxonMobil Huge Liza Field Acreage in Guyana
Guyana is a key part of Exxon’s strategy. XOM is well aware of the geopolitical game. Last quarter it said it incurred a $1.3 billion hit to its fourth-quarter earnings from a European Union windfall tax that began in the final quarter and from asset impairments. The company is suing the EU, arguing that the levy exceeds its legal authority.
- Sailfin-1 Encountered approximately 312 feet (95 meters) of hydrocarbon-bearing sandstone and was drilled in 4,616 feet (1,407 meters) of water.
- Yarrow-1 Encountered approximately 75 feet (23 meters) of hydrocarbon-bearing sandstone and was drilled in 3,560 feet (1,085 meters) of water.
- A third project, Payara, is expected to start-up by the end of 2023
- A fourth project, Yellowtail, is expected to start-up in 2025.
- ExxonMobil is currently pursuing environmental authorization for a fifth project, Uaru.
ExxonMobil said their first two sanctioned offshore Guyana projects, Liza Phase 1 and Liza Phase 2, are now producing above design capacity and achieved an average of nearly 360,000 barrels of oil per day in the third quarter. By the end of the decade, ExxonMobil expects Guyana’s oil production capacity to be more than one million barrels a day.
Liam Mallon, president of ExxonMobil Upstream Company. “We are committed to responsibly and safely developing this world-class resource to help meet global demand for secure, reliable and lower-emission energy. Our investments through the pandemic have allowed us to increase supply at this critical time, while creating value for the people of Guyana, our partners and shareholders.”
OPEC Moves on Guyana
Saudi energy minister Abdulaziz bin Salman and Haitham al-Ghais, OPEC’s secretary-general, invited Guyana to join the cartel in recent months, according to two OPEC delegates briefed on the approach it was reported over the weekend by the WSJ.
We were reminded of the instability of Russia over the weekend with the ineffective mutiny of former Putin ‘Best friend’ Prigozhin. One would think this was not a good selling point for Guyana to join in. At the same it puts Exxon in a powerful position. US President Biden has openly criticized both Exxon and Chevron over the past year. Actions from the President we could not fully understand across our energy desk given the obvious political shallowness involved.
The risks of joining OPEC for Guyana are clear. Wisely Vice President Bharrat Jagdeo told The Wall Street Journal “We just want to hug a corner for the time being and get our national act right,” he said. Guyana wis well aware of the significance of not being beholden to KSA, or for that matter Russia.
WSJ reported; “So far Guyana has chosen not to join, and Vice President Bharrat Jagdeo told The Wall Street Journal that the country needs to maximize production—and profits—in the short term, given that oil demand is expected to decline in coming decades. “Right now, the idea is to get as much of these resources out of the ground as quickly as possible given that we are not sure of the window we have in the future,” Jagdeo said.
CEO Darren Woods, during last earnings report said; “Our people’s hard work to execute on our strategic priorities delivered a record first quarter following a record year. We are growing value by increasing production from our advantaged assets to meet global demand.”
Guyana is a big part of these plans. “At the same time, our Low Carbon Solutions team is rapidly growing this new business with an additional carbon capture, transportation and storage agreement that underscores the company’s growing momentum in providing industrial customers with large-scale emission reduction solutions.’ Woods said.
XOM delivered its highest-ever annual profit in 2022 fueled by surging oil prices to resurrect it as one of America’s most profitable companies and erase billions of dollars of losses incurred during the pandemic. Exxon reaped the benefits of its countercyclical investments in oil and gas assets before and during the pandemic. The Covid crisis had primed the company for survival and efficiency and as such benefit from lucrative refining.
These impacts were partially offset by robust cost control and seasonally lower expenses, the absence of year-end inventory effects, and favorable volume/mix effects from advantaged growth in the Permian, Guyana, and LNG. Identified items unfavorably impacted earnings by $158 million this quarter, down from $561 million in the previous quarter.
Exxon’s spending on new oil and gas projects was last year to $22.7 billion, up 37% from the prior year. The company increased outlays on discoveries in Guyana, in the top U.S. shale field, and on fuel refining and chemicals.
XOM Stock Price
OPEC has itself in a pickle some would say, the last OPEC meeting showed it was not happy with Russia taking market share. The US has been taking market share also. If Guyana were to join the cartel it would be OPEC’s first new member in five years.
Notably Guyana has only one million residents, thus it would be the smallest country in the bloc by population. The expectation is it will one of the world’s largest oil producers per capita. In the game of geopolitical and oil it has become a significant player.
Source: ExxonMobil, WSJ, TC
From The TradersCommunity Energy Desk