TIGI’s enquiry about studies done by Exxon Mobil

May 01, 2017 Letters

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Dear Editor,
As Guyana engages in its quest for Extractive Industry Transparency Initiative (EITI) candidacy, it is important to ensure that the Ministry of Natural Resources is committed to the endeavour. Considering that the EITI is a global standard to promote open and accountable management of oil, gas and mineral resources, and knowing of Guyana’s stated interest in implementing this standard, TIGI wrote the Minister of Natural Resources requesting clarification on whether he had asked Exxon Mobil to submit a feasibility study of its proposed Stabroek Block development as it proceeds with the evaluation of the company’s application for a production licence. This letter was delivered on March 29, 2017 and we obtained acknowledgement of receipt almost a month later by calling to enquire on April 27, 2017. However, even after this time, we were unable to obtain a clear response about whether or not a response is forthcoming.
We provide the content of the letter below for public consumption.
Dear Minister Trotman,
DOCUMENTATION TO BE REQUIRED AND USED TO ASSESS EXXON’S APPLICATION FOR A PRODUCTION LICENCE
The Transparency Institute Guyana, Inc., respectfully refers you to Section 33 (1) of the Petroleum (Production and Exploration) Act of 1986, which Section reads as follows:
“Where the licensee has served, under section 31(1), a notice on the Minister stating that a discovery of petroleum is, in the opinion of the licensee, of potential commercial interest, the Minister may, by notice served on the licensee, direct the licensee to carry out, within a period specified in the notice of not less than two years, such prescribed investigations and studies as the Minister thinks appropriate for the purpose of assessing the feasibility of the construction, establishment and operation of an industry for the production of petroleum in the discovery block or blocks concerned.”
While this Section of the Act clearly gives the Minister an opportunity to direct companies, which have applied for a Petroleum Production Licence subsequent to having indicated in writing that a discovery is of potential commercial interest to those companies, to carry out ‘investigations and studies’ to assess the feasibility of the proposed project, the accompanying Regulations make it clear that such investigations and studies include “economic feasibility Studies relating to the recovery, processing and transport of petroleum from the discovery block or blocks in the prospecting area (Section 5 (1) (a)) of the Regulations made under the Petroleum (Production and Exploration) Act of 1986).”
Considering the structural stability of oil prices at low levels and their upward stickiness; the increases in US shale gas production; the “bearish” outlook for oil by industry experts; and the extreme uncertainty about a temporal extension of the OPEC production cuts and the effectiveness of such an extension if it were to happen; TIGI imagines that the Government of Guyana would want to know with a high degree of confidence that production licences are only issued for projects that are economically feasible.  TIGI is also keen, as might be the Government of Guyana, that the extraction and production of oil in the Stabroek Block would yield a return that is consistent with the expectations of Guyanese.
The economic feasibility and the expected return would clearly depend on the size of margins, which in turn would depend inter alia on the prevailing oil prices.  But according to the most recent (March 21, 2017) research report by Goldman Sachs, “Our database of the industry’s new oil & gas developments shows that 2017-19 is likely to see the largest increase in mega projects production in history, as the record 2011-13 capex (capital expenditure) commitment yields fruit.” 1In other words, even with an extension of the production cut by OPEC, a record increase in non-OPEC production would prevent any significant increase in oil prices.
TIGI is also aware of the moral hazard issues that tend to arise from (i) the private information companies have about exactly what risks and mitigation strategies are involved in a project such as the one taking place in the Stabroek Block, and (ii) the potential divergence of interests between the company and the host country, with the former generally putting profits ahead of concerns for safety and the environment, even while paying lip service to the latter concerns.  Put more simply, when profitability margins are tight, as they must be in the current economic environment, profit maximising companies will be inclined to take greater risks, especially if they are not contractually required to themselves underwrite those risks.
In the case of the development of the Stabroek Block oil fields by ExxonMobil and its partners, production is being aggressively fast-tracked despite the contrary extraction paths implied by the persistently weak market fundamentals.   Both the GoG and ExxonMobil (and its partners) have announced that production would begin in 2020, even though ExxonMobil will only be able to make a ‘financial decision’ sometime in mid-2017, according to its Country Manager, Jeff Simmons, in an outreach to the media fraternity.  It is therefore all the more important for citizens, civil society and agencies such as TIGI to ensure that the coincidence of interests between the GoG and ExxonMobil does not belie the former’s commitment to our national interests in regard to both the financial returns and safety and environmental security.
To this end, TIGI respectfully requests that the Minister share with it the types and particulars of the studies and investigations he has requested as part of the process for evaluating Exxon’s production licence application.  We further wish to know if the documentation listed under Section 10 (e) of the “Form for Application for a Petroleum Production Licence” as prescribed by the Regulations accompanying the Petroleum (Production and Exploration) Act of 1986, and in particular subsection (f) of Section 10 (e), will be required in the evaluation of ExxonMobil’s application.
Troy Thomas
President of TIGI (Transparency Institute Guyana Inc.)

Editor’s Note:  We carried sections of this statement in our Sunday edition with a response from Minister Trotman. We reproduce the statement in its entirety

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