Latest update November 29th, 2024 1:00 AM
Before next licensing round… Energy Dept. to pursue independent understanding of reserves, tighter decommissioning provisions in law
Before going to the next licensing round, the Energy Department wants to have an independent understanding of Guyana’s offshore reserves. This was recently disclosed by Energy Department Head, Dr. Mark Bynoe.
Energy Dept. Head, Dr. Mark Bynoe
The official said the department is in the latter stage of recruiting a firm to complete a 2D/3D multi-client survey so that it would be able to offer packages to operators from a position of knowledge.
Dr. Bynoe explained that this survey is likely to take on average, 11 months for the shooting and processing of data. When that is completed, along with other initiatives such as the revision of the petroleum laws, then they will go back to the market.
The Energy Department Head said, “Let us be clear, there is a multiplicity of blocks out there that still require exploration. So is there an absolute need for a licensing round? No, it is important for us to have improvements as we move forward.”
The official stressed that the revision of the outdated petroleum laws is particularly necessary as he wants to see tighter provisions on decommissioning, among other issues, included.
Decommissioning is considered one of the most crucial aspects of an oil project. It involves safe well plugging, platform removals, pipeline and power cable extractions as well as secure site clearance. All of this takes place when a project is nearing its end. It is an expensive process that runs into billions of dollars.
But if it is not managed properly, and the right contractual provisions and policies are not in place, countries could be left to stand this cost.
As a safeguard against this, oil producing nations have moved in the direction of establishing funds which the oil company or operator makes payments. When the time for decommissioning or abandonment comes, the countries use that Fund to handle the associated expenses.
In the case of Liberia, the country ensured that ExxonMobil signed onto such an agreement.
In Guyana’s case, however, the PSA signed with Exxon for the Stabroek Block makes no provision for such a Fund, much less the foregoing provisions.
What is in place is a provision that greatly benefits Exxon. In the PSA it has with Guyana, the American oil king is allowed to tabulate a budget for abandonment, and recover a portion of that budget in the form of oil years before it is time for decommissioning.
During an exclusive interview with Kaieteur News, University of Houston Instructor, Tom Mitro had said that best practice dictates that while some cost recovery for abandonment is important to establish, this only happens after the company starts pre-funding into some sort of escrow account.
“This provision of allowing them to begin cost recovery, in some cases, 20-30 years before they actually fund the costs, is a very significant benefit for the companies from a cash flow and net present value standpoint… It is not the norm. It is the most unusual provision I have ever seen in a PSA,” Mitro had stated.
The University Instructor had further noted that Guyana is in danger since the company may end up selling its equity interest prior to the time of decommissioning/abandonment. If that was to happen, Mitro noted that the way Guyana’s PSA is set up, Exxon and its partners would have fully recovered all the costs associated with that activity.
In short, only Guyana stands to lose in this type of arrangement, he said. He further stated that this should be corrected in Guyana’s model PSA which is being prepared by the Department of Energy.
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