ExxonMobil has delayed a final investment decision on the second-phase development of the giant Liza play off Guyana as President David Granger’s government tries to reconcile an aggressive development schedule with domestic complaints about terms granted to the US supermajor.

ExxonMobil said in July that it was aiming to sanction the Liza 2 development by the end of this year, chasing first oil by mid-2022, but the final investment decision target has slipped back to the first quarter of 2019, according to industry sources.

With Guyana's government facing a considerable administrative workload from the fast-moving Liza projects, Upstream understands that the delay actually relates back to the first Liza floater, already under construction following a contractual award to SBM Offshore.

This first phase of development, featuring a floating production, storage and offloading unit with a production capacity of 120,000 barrels per day of oil, has already received government approvals and project sanction, and is expected to start producing in 2020.

Cost recovery arrangements for Liza 1 were never fully reviewed, however, and this element continues to come under scrutiny.

The Granger administration recently put out a tender for consultancy services in order to obtain an independent analysis of this aspect of the cost oil aspects of the production-sharing agreement that governs the Liza development, slowing the approvals process on Liza 2.

The PSA has been the target of broader criticism from opposition politicians and some sections of civil society ever since terms for ExxonMobil’s giant Stabroek block were renegotiated in 2016.

These criticisms have arguably grown since the administration published the content of the production sharing agreement in December 2017, following a transparency campaign.

The terms offered a better return to the oil company than most international benchmarks, according to a report by the International Monetary Fund (IMF).

OpenOil, a Berlin-based pro-transparency entity which offers open data frameworks and training for managing natural resources at a supranational level, applied its own financial model and stated: “Over the life of the project the government should expect to see from 52% to 54% of profits, compared to well over 60% in a cluster of comparable projects signed in other frontier countries.”

The PSA allows ExxonMobil to utilise up to 75% of production as cost oil, including a 2% royalty, and the remainder is split 50:50 with Guyana.

This amounts to a government share of 17,000 bpd of oil for the first five years of production from the first FPSO.

The PSA also commits Guyana to waiving corporate tax, value added tax and customs duties “in respect of income derived from petroleum operations or in respect of any property held, transactions undertaken or activities performed for any purpose authorised or contemplated” and also waiving most import duties. Fuel costs are also tax-deductible under the contract.

The OpenOil report suggested there is also “a significant possibility, as reserves growth gathers pace, that ExxonMobil and its partners could achieve “rates of return of over 25%.

Opposition politicians have also criticised a PSA stability clause that apparently rules out any new taxes, royalties or other additional fiscal obligations.

Natural Resources Minister Raphael Trotman has said Guyana will earn just over $300 million annually from the first FPSO and argued the PSA terms follow industry best practices and norms.

Some forecasts, cited in a report on Guyana by the New York-based Natural Resource Governance Institute, suggest fiscal revenues from the petroleum sector could range between $7 billion and $27 billion over the next 30 years.

The head of Guyana’s new Department of Energy Mark Bynoe recently stressed that Guyana will honour the sanctity of existing oil contracts, but added that the government is drafting new model production sharing agreements for future oil and gas contracts.

With this line in the sand apparently drawn, plans for a second FPSO with a capacity of 220,000 bpd are highly advanced and look unlikely to stall.

The ExxonMobil-led consortium awarded a front-end engineering and design contract to SBM Offshore in July and is merely waiting for government approval and project sanction to mature into another build, operate and transfer contract.

Similar arrangements are in place for contracting the subsea systems on the the second floater, which will be called Liza Unity FPSO.

ExxonMobil is already working flat out on the engineering and contracting arrangements for a third FPSO, this time on the Payara field.

Conceptual engineering for the Payara floater began more than one year ago, and Upstream understands tendering arrangements for engineering, procurement, construction and installation of the long lead items, including subsea systems, are also advanced. Project sanction is expected in 2019.

There are at least two more FPSO projects in the pipeline and industry insiders signal that ExxonMobil expects to launch new floater projects at a rate of one per year.

“We are proud of the progress made so far on Liza 1,” ExxonMobil Guyana project executive David Scott told Upstream.

"The stage has been set for future phases and we hope to maintain the tremendous momentum we’ve built,” he added.

Some sources nevertheless referred to continuing concerns that local criticism of the re-negotiated PSA could cause delays.

“The consortium would like to see as much as possible approved before 2020, which is an election year,” one Georgetown-based source told Upstream.

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Liza 2 sanction slips as Guyana workload grows