Summary
- Exxon Mobil's Guyana discovery is the king of the company's portfolio. The company has discovered more than 6 billion barrels of oil here.
- The discovery is so big that it involves geopolitical risk that is worth paying attention too.
- Overall, I expect the discovery to add several billion dollars in annual profit to the company's bottom line in the next 5-6 years.
- Sulfur risks are overblown, as revealed by Exxon Mobil's own investigations.
- Looking for a portfolio of ideas like this one? Members of The Energy Forum get exclusive access to our model portfolio. Get started today »
In the aquarium industry, the Discus fish is known as the King of the Aquarium. Its colorful nature and striking characteristics make it the centerpiece of an aquarium. Similarly, Exxon Mobil (NYSE: XOM) has Guyana. The purpose of this article is to discuss Guyana and its potential to generate strong long-term rewards for shareholders of Exxon Mobil.
Guyana Overview
We cannot discuss the potential of Guyana for Exxon Mobil shareholders without starting by discussing the country. Next to Venezuela, Guyana is a small nation that was previously thought to have minimal oil resources. Even without production starting yet, the discovery has already started to transform the country.
Guyana Overview - Exxon Mobil Investor Presentation
Guyana is a small country. It’s also not a particularly wealthy country, with a GDP per capita just under $7,000. The company’s population is roughly 750 thousand, and almost half of these people live in the Georgetown metro area. The company has a primarily mining and agriculture based economy, with less than 250 miles of paved roads. All of this point to a country ripe for oil development.
For reference, Saudi Arabia’s oil production is 0.3 barrels per person. Qatar, the world’s wealthiest country per capita because of its oil resources, has production of 0.7 barrels per person. Exxon Mobil’s planned production will push Guyana’s production per person north of 1 barrel per person by 2025. The UN has had this to say about the discovery:
"Come 2025, GDP will go up by 300% to 1,000%. This is gigantic. You will be the richest country in the hemisphere and potentially the richest country in the world."
There is something important to take into account there. Wealth changes society, it changes lives. There will be strong incentive here for Guyana’s government to maximize government revenue from the project. The terms of the deal with Guyana effectively result in the country receive 14.5% of revenue. Rewards will increase as Exxon Mobil recuperates costs, but these are considered great terms.
Already, there are discussions within the country about on the fringe end, renegotiating the deal with Exxon Mobil, but otherwise, having stricter deals with future countries. The best case here is the deal maintains its terms. However, with that said, this deal is the first time Guyana emerges on the world stage as a wealthy nation, and there is a risk that the country tries to take advantage of Exxon Mobil.
