Policy to control ExxonMobil’s rate of extraction has fallen by the wayside

Sep 13, 2020 News

IDB US$11.6M loan…

By Kiana Wilburg

In December 2018, Guyana had taken a loan from the Inter-American-Development Bank (IDB) to improve its capacity to effectively manage the oil sector.
A portion of the US$11.6M loan was dedicated to developing a depletion policy, a crucial document that slows or puts a break on the aggressive rate at which ExxonMobil is extracting Guyana’s oil offshore in the Stabroek Block.
To date, the public is yet to see a draft for consultation.
In the meantime, ExxonMobil is pumping approximately 87,000 barrels of oil from the Liza Phase One Project, which will soon reach peak production of 120,000 barrels of oil per day.
Just recently, the oil giant disclosed that it is already on track to producing oil from the Liza Phase Two Project by 2022.
As for the third development Project called Payara, the Chief Executive Officer (CEO) for Hess Corporation, John Hess, has expressed great confidence that Hess and its other Stabroek Block partners, ExxonMobil and CNOOC/NEXEN, will get the required government approval before month-end.
In doing so, it will be on track for production by 2023. These projects are part of the five ExxonMobil hopes to have on stream by 2025-2026. In all, the trio will cost Guyana over US$15B.
On more than two occasions, the International Monetary Fund (IMF) had supported the move to implement a depletion policy, which would help to slow down the rate of extraction and give Guyana the time it needs to effectively audit those costs.
It would also give the nation more time to develop the rules and implement the relevant mechanisms to effectively monitor and manage the sector.
If the expenses for other projects continue to be added on before the audit for Liza Phase One is finished, the IMF warned that Guyana would ultimately end up accepting costs as reported by the oil companies, even if those expenses are inflated. Also compounding this state of affairs is the fact that Guyana has accepted auditing timelines that are relatively short by international standards.
LONGEVITY
Trinidadian Energy Strategist, Anthony Paul, had advised Guyana that a depletion policy would be key to ensuring the longevity of its oil industry. In pursuing this document, Paul had told Kaieteur News that Guyana needs to have a proper understanding of the geology of the basin.
The Chatham House Advisor had said, “You need to understand the quality of your reservoirs. This means that you need to have good seismic data, good technology to acquire that data, and the experienced people who can read that data for you. Those people can tell you without relying on the oil companies, what wells have oil and which have gas. They will also advise on what should be developed now and how fast…”
The energy expert added: “You must also bear in mind that these companies will stumble on gas and most would not want to bring it up because economically, it is more profitable to bring up oil rather than gas. So if there is a reservoir that has more gas than oil, the company would not drill to complete it. It will stay in the ground…”
Taking this scenario into account, Paul stressed once more that Guyana needs experienced industry analysts who can put together a policy that will seek to tie those gas finds to proper development strategies.
The Trinidadian said, “It, therefore, means that Guyana needs a regulator who can interpret reservoir performance and make sure you have the right economics around the development plans too. Only then can you say to the company, “Fine, we understand field by field what is going on but let us look at the country’s perspective, what the country needs”. What is the right level of production for this country given the capacity we have to manage it.”
At the same time, the energy advisor cautioned that a depletion policy is in stark contrast to the company’s interest which is to extract the resources as fast as possible.
“Remember, these companies want to make quick money so there will be a conflict with the interest of the government. This is where you need skillful negotiators to manage that conflict in interests. And it can be done,” the official concluded.

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