Guyana's pick of new US startup faces hurdles to tap vast gas reserves

By Curtis Williams and Kemol King

HOUSTON/GEORGETOWN (Reuters) - Doubts are growing over Guyana's pick of a little-known U.S. startup to craft and develop projects to monetize its vast untapped natural gas resources that could cost up to $30 billion. Year-old Fulcrum LNG faces financing hurdles that could derail its selection. Ultimately, the South American nation may end up relying on a consortium led by Exxon Mobil (NYSE:XOM ), which controls all the production in the new energy hotspot. So far the top U.S. oil producer has focused on oil.

Guyana has been pressing Exxon to come up with a plan to convert its about 16 trillion cubic feet of gas reserves into valuable exports such as liquefied natural gas (LNG), or relinquish areas where gas has been discovered so they can be developed by others.

When Fulcrum was chosen in June, its founder and former Exxon executive Jesus Bronchalo said on LinkedIn he was "delighted and honored" to be selected "to design, finance, construct and operate the required gas infrastructure."

Since then, Fulcrum has not identified any financial backers, casting doubt over its ability to pull off the work, and leading government officials to now describe its selection as tentative. "No project has been awarded to anyone. We're in an exploratory phase," Guyana's Vice President Bharrat Jagdeo told Reuters last month. That is a change from the ministry of finance's description of the awarding of the contract as among its economic achievements this year. Guyana's president, who announced the award, said an agreement, that may or may not include Exxon, was expected next year.

Meanwhile, the opposition People's National Congress party is skeptical about the award.

Fulcrum LNG "lacks requisite experience and a demonstrated ability to raise the type of multi-billion dollar finances required," said Elson Low, an economist and advisor to the PNC.

FULCRUM'S LEVERAGE

Guyana picked Nevada-registered Fulcrum LNG, which it said offered "the most comprehensive and technically sound proposal," among the 17 bidders, including China's third-largest oil firm CNOOC (NYSE:CEO ), U.S. gas pipeline giant Energy Transfer (NYSE:ET ), and the No. 4 U.S. LNG exporter Venture Global LNG.

Ira Joseph, an LNG market expert and senior researcher at Columbia University's Center on Global Energy Policy, said it would be "very difficult" for a startup to raise the financing for a multi-billion-dollar infrastructure project. "Why isn't Exxon building the LNG plant itself? It is very hard to raise that kind of money to make a project work, (Guyana) would have to bring in one of the big players like TotalEnergies (EPA:TTEF ) or Shell (LON:SHEL )," Joseph said.Besides pairing with U.S. oil service Baker Hughes (NASDAQ:BKR ) and construction contractor McDermott, Fulcrum's proposal would include financing from the U.S. Export-Import Bank and the participation of private equity firms and an environmental partner, the government said.

The U.S. Export-Import Bank and McDermott did not reply to requests for comment, and Baker Hughes referred questions to Fulcrum. Bronchalo - who is Fulcrum's CEO, secretary, treasurer, director and president - and the only other person associated with the company, the technical director, did not respond to requests for information.

Fulcrum's website does not identify any prior projects, but claims "extensive experience in origination of new opportunities to access and capture global LNG markets."

Guyanese officials now say they chose Fulcrum without first determining whether it could raise the money to tap the enormous gas reserves. The technical committee that selected Fulcrum was confident it could raise money for the projects, Jagdeo told Reuters. "They represented they had the capacity to raise the money."

Minister of Natural Resources Vickram Bharrat said Bronchalo's expertise, having worked at Exxon in Guyana and Asia for two decades helping to negotiate contracts, swung the selection in his favor. "We don't have the expertise and capability in government, especially when it comes to gas ... we expect Fulcrum will have the capability and experience," he said in an interview in October.

COLLABORATION OR CONFLICT

Exxon's consortium with Hess (NYSE:HES ) and CNOOC has discovered more than 11 billion barrels of oil off Guyana's Caribbean coast since 2015, and produced 500 million barrels of crude from its Stabroek block since 2019, turning the tiny country overnight into a significant global oil producer.

So far, Exxon's only planned use for the gas is a small gas-to-power project.

The project to develop gas independently was conceived as a way for Guyana to create a new revenue stream apart from the oil, which is entirely exported. Gas would develop the country’s manufacturing and food sectors and help make it a regional energy powerhouse.

Last year, the country's take from royalties and fees was $1.6 billion, compared with $6.33 billion in profit that went to the consortium. Exxon's Guyana country manager Alistair Routledge told Reuters the company would make a decision on tapping newer discoveries containing mostly gas by mid-2025.

Fulcrum "may have better data and more knowledge than the government to push Exxon in that direction," said Guyana's vice president.

Jagdeo said Guyana wants Fulcrum to work with Exxon, but would push forward with or without it. If, however, Exxon does not act on the discoveries or auction the acreage to others willing to develop the gas, Guyana could claw back some offshore land, he said.



The oil major, on the other hand, believes it alone can decide how to use that gas, a person familiar with the company's position said, citing the agreement it has with Guyana.

"Exxon did indicate that they are interested in the development of gas, but as the talks continue, we will see how much commitment is there in regards to gas," Minister Bharrat said.

Source: Investing.com