After discovering oil off the shores of Guyana, Exxon Mobil (XOM) appears to have hit it big. However, as the integrated oil major works to further develop the Liza discovery, it is also in the midst of significant financial negotiations with foreign governments.
Analysts at Credit Suisse recently highlighted the discussions between Exxon Mobil and the Chadian government as well as the Nigerian National Petroleum (NNPC), which could both affect the company's balance sheet in the coming years.
On the positive side, Nigerian National Petroleum, the state's oil firm, agreed on Thursday to pay back $5.1 billion in unpaid bills to oil majors including Exxon Mobil and Royal Dutch Shell (RDS.A) , according to Reuters. The firm has accumulated a total of $6.8 billion in unpaid bills up to December 2014, of which it was responsible for paying under joint ventures with the oil majors.
However, there is one critical caveat that could alter the deal: production.
"The agreement calls for the $5.1 billion to be repaid within five years, interest free, in the form of crude oil cargoes, but only if the country's production exceeds 2.2 Mbpd," the Credit Suisse analysts mentioned in a research note on Thursday. The Nigerian oil minister also said that if, for any reason, it did not meet the threshold, it will not pay the $5.1 billion, "so that is fantastic," Kackikwu added.
Even though this deal hinges on the production from a member nation of the Organization of Petroleum Exporting Countries, Nigeria, along with Iran and Libya, are currently exempt from the proposed production cuts and will likely be allowed to raise production levels. Still, it could take five years for Exxon Mobil to see some of those bills being paid off.
Meanwhile, Exxon Mobil is discussing its $74 billion fine over royalties with the Chadian government, an amount that is an astounding five times the country's annual gross domestic product, the Credit Suisse analysts noted. Chad is reportedly wants a 2% royalty fee on crude exports, which is higher that the previously agreed up royalty fee of 0.2%. Exxon has appealed the October court ruling, Bloomberg reported, but due to the ongoing talks, the appeals court hearing has been delayed.
The $74 billion fine is even greater than the $61 billion penalty BP Plc (BP) incurred following the 2010 Macondo disaster, when a well below the Deepwater Horizon oil rig erupted, killing 11 rig workers and contaminating the Gulf of Mexico with crude oil for months.
Even though the world's biggest oil producer, with a $352 billion market cap, is facing these financials deals and negotiations, it has a "commercial find" at its Liza Discovery off Guyana, according to the Credit Suisse analysts, which marks "the first in the 50-year history of the South American nation."
Exxon Mobil has partnered with Hess (HES) and CNOOC Nexen Petroleum Guyana Limited, which is a subsidiary of China-based major national oil company CNOOC Limited. "The discovery is estimated to hold between 1.0 to 1.4 billion barrels of oil equivalent, which was the largest oil discovery in 2015," the Credit Suisse analyst team said. "Guyana officials expect to see a potential [final investment decision] next year," they added.
While the oil major's Liza discovery presents an opportunity for upside, the fine negotiations could weigh on the stock, and it could take five years to see the funds from Nigeria, if Exxon Mobil ever will.
Shares of XOM were holding relatively flat during the trading session on Friday, trading at around $84.95. The Credit Suisse analysts rate XOM shares at Underperform, a rating that has been maintained since it was downgraded in January 2015. The consensus rating among analysts is Hold at 48.3%, according to Bloomberg data.