Govt. must be part of cost negotiations for oil developments

Sep 15, 2020 News

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– Payara project should be made public – Oil & Gas Governance Network

In order for Guyana to get as much value as reasonably possible from the extraction of its petroleum resource, the Government must be part of negotiations of costs for the development of its oil fields. This is the urge of the Oil and Gas Governance Network (OGGN). The pressure group, formed to ensure good governance of Guyana’s oil sector, insists that Guyana must not allow itself to be saddled with costs it cannot verify.
“To ensure we are not being saddled with an unfair 75 percent of oil revenues going towards expenses, since Guyana is sharing the cost and the profits,” it stated, “the government must be a part of all cost negotiations and implementation with all sub contracts (such as FPSO, etc.). The contract with Exxon must be broken down by activities, items of work, a bill of quantities, with the costs as unit rates, lump sum, etc., so that government can verify that costs are appropriate. This would avoid possible overbilling such as a US$6,000 plane ticket from Miami to Guyana where a fair price may be US$800. This is one of the reasons why the present contract is unfair.”
Several members of the OGGN signing on to this statement are Ramnarine Sahadeo, Dr. Jerry Jailall, Rajendra Singh, Joe Persaud, Mike Persaud, Charles Sugrim, and Darshanand Khusial. They are civil society professionals who have displayed a sustained interest in the management of Guyana’s oil and gas industry.
Overbilling, the issue they are championing today, could cost Guyana billions of United States dollars if it is not well handled. This is because Exxon and its partners have to recover all of their investments from the sale of the oil, and the more oil companies recover, the less Guyana gets from profit oil. For instance, if all of the recoverable oil in a field is worth US$20 billion and oil companies claim $6B, in a simple scenario which doesn’t factor in interests on loans, Guyana’s profit would be about US$7.5 billion. However, if Guyana involves itself diligently in negotiations and finds that it could save on US$1 billion by striking out overstatements, it would receive an extra US$500 million in profit over the life of the field development. That’s more than a third of Guyana’s 2019 budget.
Rystad Energy recently said that Exxon could field as many as 10 FPSOs in Guyana’s Stabroek Block before the decade is out. That would amount to 10 projects Guyana could lose billions of United States dollars from if it does not take a vested interest in the money Exxon and its partners claim they will be spending on the developments of Guyana’s oil fields.
Guyana has already approved two field developments at Liza Phases One and Two, and it is yet to properly delve into the costs ExxonMobil claims will be expended for the duration of these projects, which currently amount to US$9.5 billion. The company may even claim another US$6B to develop the Payara field.
Meanwhile, the pace at which Guyana is moving through the audit of Exxon’s US$460M pre-contract costs has already set a worrying precedent that indicates it may not be able to keep up with Exxon if it continues to approve field developments as quickly as it has. The pre-contract audit started late last year, and it still has not been completed.
When it comes to publication of field development plans, it was evident that the former APNU+AFC government was not amenable to the prospect. Kaieteur News had pointed out that Trinidadian Local Content Expert, Anthony Paul, and University of Houston Instructor, Tom Mitro, both supported the prospect of FDPs being made public. Mitro had said that it was unfortunate that, in many cases, these plans are not made public because companies argue that they contain geological or engineering data and analysis that are proprietary and could benefit their competitors. He, however, argued that since the field developments would have such a far-reaching impact, the company’s concerns should be overridden by the interests of the public. He further argued that the government could simply remove whatever is sensitive/proprietary from the FDP, and publish all else.
Paul had noted that Norway is a good example of a country that has led the way in this regard. The Norwegian Petroleum Directorate, which is that country’s regulator, publishes this information.
Local Chartered Accountant and Attorney-at-Law, Christopher Ram, had argued too that FDPs should be made public, as therein lies information which could inform the public about costs.
Former Petroleum Advisor to the President of Guyana, Dr. Jan Mangal, had also argued that the release of these plans to do well to ensure that ExxonMobil and its subcontractors, like SBM Offshore, do not cut corners while doing their work, in ways that could cost Guyana dearly. The Petroleum Consultant said that Guyana would not have a leader that could fix everything, but that the Guyanese public needs to take an interest in the ownership of their destiny.

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