Govt to receive 2020 Liza One operating costs from ExxonMobil

Jan 25, 2021 News

– Has two years to audit

By Kemol King

The Liza Destiny FPSO is currently producing oil at ExxonMobil’s Liza Phase One project (Photo: SBM Offshore)

Kaieteur News – With over US$6 billion in unaudited bills from oil supermajor ExxonMobil, the company’s local subsidiary, Esso Exploration and Production Guyana Limited (EEPGL), is set to hand Guyana yet another one by the end of the first quarter of this year. The new bill will account for the operating costs ExxonMobil footed for the year 2020 to run the Liza Phase One development.
The deadline for the submission of these costs is set out in the Payara production licence.
Section (k) of the licence, which speaks to Cost Estimates, states “Within one hundred and eighty (180) days from the date of the Licence, the Licensee shall submit a report in the format and degree of detail no less than that as set out in Schedule X2 (Operating Costs Estimates) as follows: Schedule X2 – Breakdown of Actual Operating Costs for the first year (or such shorter period as has completed as of the date of the report) of operation of Liza Phase 1…”
In this case, the licencee refers to the Stabroek Block co-venturers, ExxonMobil (the operator), Hess and CNOOC.
Schedule X2 of the licence sets out the categories of operating costs: Operations, Maintenance Repair & Inspection, Logistics, Well Work, and Cost Above Field.
The operating costs are separate from the development costs for a well. While development costs cover what is needed to procure and install the equipment for production at a well, operating costs cover what is expended to keep the production running.
ExxonMobil will be expected to submit the yearly operating costs for each well it produces from as Liza Phase Two and Payara come onstream, in addition to the development costs.
Because all of those costs are expected to be recovered, Guyana is charged with auditing ExxonMobil’s submissions to ensure that it and its partners do not recover unreasonable or otherwise overstated costs. The Stabroek Block production sharing agreements (PSA) grants Guyana a two-year window to scrutinize these costs, after which, all claims must be accepted as is.
Guyana’s lack of capacity to audit oil companies’ submitted costs and at a suitable pace is a going concern for the media and transparency advocates.
The only audit Guyana has done on Exxon’s costs was outsourced to a British firm called IHS Markit. The firm was charged with auditing Exxon’s first set of costs of US$1.6 billion, inclusive of pre-contract expenditures. The previous administration had allowed more than years to pass before it contracted the firm to audit the supermajor’s pre-contract costs in December 2019. Despite the fact that this contract was awarded over a year ago, setbacks have held up its completion.
The Government is set to review a draft report from Markit – the second report in the process, which it accepted from the firm – after which it will submit the document to Exxon and its partners for comments.
The government has made some adverse findings, according to Vice President, Dr. Bharrat Jagdeo, including claims for expenses, which it doesn’t consider recoverable.
After Exxon’s comments are made, the government is supposed to instruct Markit to submit a final report.
After that is handled, the government will have to turn to in excess of US$6 billion of outstanding claims to audit from ExxonMobil.