Financial Analysis Report of EEPGL, HESS and CNOOC Financial Statements – FY 2022 a contextual analysis

Summary GUYANA’S net take inclusive of local content spend together with the government’s take cumulatively as of 2022 amounted to G$697.7 billion or US$3.34 billion representing 34.3 per cent of the cumulative net operating cash flow for the period 2019-2022― which stood at G$2.033 trillion. Of this amount, the cumulative net cash flow transferred to the parent companies amounted to a meagre G$6.4 billion or US$30 million representing 0.31 per cent of the cumulative net operating cash flows for the period.

The cumulative net cash flow of EEPGL, HESS and CNOOC for the period 20192022 revealed that Guyana earned a total of G$424 billion or US$2 billion cumulatively for this period which represents 21 per cent of the cumulative net operating cash flows for the same period. Conversely, the oil companies have repaid a meagre G$6.4 billion or US$30 million to their parent companies which represents less than 1 per cent of the cumulative net operating cash flows for the period FY 2019–FY 2022. Effectively, this means that the oil companies are reinvesting almost 100% of the net cash flows generated from the operating activities in Guyana in new exploration activities and to develop future projects into production. This is especially important since there is a limited window in which to extract these resources in view of the global energy transition agenda that is likely to have an impact on global demand for crude and ultimately resulting in lower crude oil prices in the future. And equally, it is crucial for Guyana to maintain the current pace and momentum in the industry aimed at enabling the country’s sustainable economic transformation and development agenda.

1. Background

The financial analysis presented herein is a contextual analysis based on the consolidated audited financial statements for the financial year ended December 31, 2022, for Esso Exploration and Production Guyana Limited (EEPGL), Hess Guyana Exploration Limited (Hess), and CNOOC Petroleum Guyana Limited (CNOOC).

The objective of this report is to bring clarity and context in respect of the fi- nancial results of the oil companies’ activities in Guyana’s emerging petroleum industry. There have been several media reports on the local subsidiaries’ financial results wherein, for example, the gross earnings was reported incorrectly as the net earnings.

It should be noted that the audited financial statements are prepared in accordance with International Financial Reporting Standards (IFRS). Therefore, in order to derive the net earnings for the oil companies and the government’s take accordingly, the reported earnings ought to be adjusted by applying the fiscal terms pursuant to the Production Sharing Agreement (PSA) that governs the Stabroek block. For ease of reference, the fiscal terms are stated as follows: i) 50/50 profit share, ii) 75 per cent cost recovery ceiling, and iii) 2 per cent royalty

The analysis also sought to illustrate a global perspective by comparing the local operator’s, namely EEPGL’s financial indicators relative to the parent company's (ExxonMobil) global financial indicators. The results demonstrate the extent to which the net earnings in the Guyana market contributed to the global net earnings, assets, and net operating cash flow. This is an especially important perspective for the Guyanese stakeholders since many observers and analysts have propagated the view that the Guyana’s oil and gas earnings account for a substantial portion of the parent company’s global earnings. The findings confirmed that this is not the case at this point in time.

2. Discussion and Analysis Crude Oil Production

Citing the National Budget Speech, 2023, the oil and gas sector is estimated to have expanded by 124.8 per cent in 2022, with a total of 101.4 million barrels of oil produced, compared with 42.7 million in 2021. The Liza-Unity Floating, Production, Storage and Offloading (FPSO) began producing in early-2022, increasing the number of FPSOs currently producing to two platforms. In 2023, it is anticipated that a third FPSO, Liza-Prosperity, will commence production by the end of this year. With these three FPSOs, production capacity is forecasted to reach 560,000 barrels per day (bpd).

Natural Resource Fund

Profit oil accounted for thirteen (13) lifts of 1-million-barrel oil cargoes in the year 2022 in comparison with five (5) lifts for 2021. Profit oil amounted to G$262 billion and royalty amounted to G$32.2 billion for the year ended December 2022. The total assets of the NRF stood at G$298 billion as of the end of 2022.

Variance Between NRF and Financial Statements

Readers will observe that in the analysis presented, there is a notable variance between the profit oil and royalty reported in the Natural Resource Fund (NRF) versus the same as per the consoli- statements for the NRF when compared to the consolidated financial statements for EEPGL, Hess and CNOOC.

The other factor that would have contributed to the variance is the difference in exchange rates used for the conversion of USD/GYD by the Bank of Guyana, which was at a rate of $208.43, and whereas the average market exchange rate was at a rate of $207.76.

Guyana’s net take inclusive of local content spend together with the government’s take cumulatively as of 2022 amounted to G$697.7 billion or US$3.34 billion representing 34.3 per cent of per cent of the net cash flows generated from the operating activities in Guyana in new exploration activities and to develop future projects into production. This is especially important since there is a limited window in which to extract these resources in view of the global energy transition agenda that is likely to have an impact on global demand for crude and ultimately resulting in lower crude oil prices in the future. And equally, it is crucial for Guyana to maintain the current pace and momentum in the industry aimed at enabling the country’s sustainable economic transformation and development agenda. billion, reflecting an increase of 350 per cent or G$1 trillion over the previous year. However, by virtue of applying the fiscal formula in accordance with the terms and conditions of the PSA for the Stabroek block, the net operating profit amounted to G$234.4 billion or US$1.12 billion for EEPGL, Hess and CNOOC, while profit oil and royalty amounted to $272.6 billion or US$1.3 billion for the Government of Guyana (GoG). Consequently, the Government’s take is G$38.2 billion more than the net operating profit earned by EEPGL, Hess and CNOOC.

The consolidated statement of cash flow analysis for FY 2022 revealed that the dated financial statements for 2022 when the fiscal formula is applied.

To this end, the average price of crude oil in 2022 that applied to the government’s share of profit oil and royalty was US$99.8 per barrel. However, it can be extrapolated that the financial statements of EEPGL, Hess and CNOOC for 2022 was prepared based on an average price of US$90.5 per barrel.

Hence, this partially explains the variance between the profit oil and royalty reported in the audited financial the cumulative net operating cash flow for the period FY 2019-FY 2022―which stood at G$2.033 trillion or US$9.8 billion. Of this amount, the cumulative net cash flow transferred to the parent companies as repayment of initial equity capital invested amounted to G$6.4 billion or US$30 million representing 0.31 per cent of the cumulative net operating cash flows for the period.

With the aforementioned in mind, this means that effectively the oil companies are reinvesting almost 100

The consolidated statement of comprehensive income for EEPGL, Hess and CNOOC revealed gross revenue for FY 2022 at G$1.9 trillion or US$9.15 billion, representing an increase of G$1.36 trillion or 251 per cent over the previous year. Operating expenditure amounted to G$507.9 billion and represented 26.53 per cent of gross revenue, down from 42 per cent of gross revenue in FY 2021.

Operating income before tax for FY 2022 amounted to G$1.4 trillion or US$6.7 net cash flows generated from operating activities amounted to G$1.552 trillion, the net cash outflows from investing activities amounted to G$812 billion and the net cash outflows from financing activities amounted to G$754.9 billion. Thus, with an opening cash balance for the period of G$18.5 billion, the net cash and cash equivalents as at the end of FY 2022, amounted to G$3.29 billion.

Having examined the cumulative statement of cash flows for the period FY 2019