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Exxon to bill Guyana for another unsuccessful well
Kaieteur News – Hitting its second unsuccessful well within the space of just two months is ExxonMobil. This follows after the US oil giant announced yesterday that drilling at its Hassa-1 well in the lucrative Stabroek Block did not encounter any hydrocarbons. However, despite this company encountering a fruitless venture, like the Tanager-1 well in the Kaieteur Block, Guyana would still have to foot the hefty bill for the drilling of this hole.
“The Hassa-1 exploration well in the Stabroek block did not encounter hydrocarbons in the primary target reservoirs,” said ExxonMobil’s Guyana Public and Government Affairs Advisor, Janelle Persaud, in a statement yesterday. “However, the well did encounter hydrocarbons in other intervals. We are evaluating the data which will be integrated into our regional subsurface interpretation and modelling,” she added.
Kaieteur News, yesterday, followed up with Persaud, requesting that information be shared on the depth of which the Hassa-1 well was drilled, as well as the cost to drill the well. She, however, declined to say more than was offered in her statement.
The Hassa-1 well, which was drilled by the Don Taylor, is located approximately 30 miles east of the Liza field, near the Guyana-Suriname border, and south of the Canje Block.
The Canje offshore concession is one of the blocks given away by former President Donald Ramotar just days before the 2015 General and Regional elections. The unqualified companies paid Guyana nothing for this block, as well as the Kaieteur concession, and were awarded with generous contractual terms.
Notably, The Stabroek Block contract allows the contractor to recover costs incurred from its exploration. In fact, Article 2.1 of Annex C (Accounting Procedure) states, “Exploration costs are all direct and allocated indirect expenditures incurred in the search for Petroleum in an area which is or was, at the time when such costs were incurred, in the Contract Area…”
These include seismic and other surveys and studies, core hole drilling and water well drilling, labour materials and equipment used in drilling exploration and appraisal wells, general and administrative costs, annual overhead charges allocated to exploration costs, and any other contract costs incurred in the search for an appraisal of petroleum after the effective date of the contract.
Notably, the International Monetary Fund (IMF), years ago, pointed to the need for Guyana to review its rules for cost recovery but subsequent administrations have shown little to no political will to enforce the rules as they stand, by auditing and scrutinizing all of the costs being claimed for recovery.
Each well drilled adds more and more to the billions of US dollars in expenses oil companies are racking up to fund their offshore operations. The more those bills go up, the lower Guyana’s profits are from the sale of its crude. Concerningly, Guyana has a small window to scrutinize and challenge the costs being claimed by oil companies. In all of the oil deals signed, Annex C states that Guyana’s right to “audit and inspecting the contractor’s accounts and records for any particular calendar year extends only ‘within two (2) years from the end of each such Year’.”
Oil companies have, over the years, drilled wells in the Stabroek, Kaieteur, Orinduik, and other licences, but the only cost that the government is actually working on scrutinizing is that of the US$460M pre-contract costs from the Stabroek Block agreement. It has taken almost a year for the UK firm, IHS Markit to conduct this audit. So far, the newly elected Irfaan Ali administration has shown no interest in scrutinizing these costs at a pace that will allow Guyana to legally challenge them.
ExxonMobil has since initiated drilling in Bulletwood-1in the third block it operates called the Canje Block. This well is anticipated to hold about 500 million barrels of oil equivalent resources, and the prospect is being termed a ‘Liza look-alike.’ Whether or not this anticipated drilling yields a commercial find, Guyana will have to foot the bill.
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