Chinese oil partner is set to recover $39.4B for decommissioning

Jun 14, 2021 News

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Kaieteur News- After a careful review of the company’s latest financial statements, Chartered Accountant, Christopher Ram has found that CNOOC Petroleum Guyana Limited, the Chinese partner with a 25 percent stake in the Stabroek Block, is poised to recover $39.4B for the decommissioning of wells and facilities for the Liza Phase One Project.
Decommissioning is a practice that occurs when an oil-producing field is nearing its end. It entails the safe removal of pipelines and other infrastructure that were fixed to the ocean floor to extract the oil. Since this exercise runs into millions of dollars, oil-producing countries often times establish a fund so that the operator can make deposits to handle those expenses when the time comes. If the money that accumulated over time is found to be less, the company is required to meet the shortfall. If the money is found to be in excess, a reimbursement is issued. This is standard industry practice.

Guyana’s Production Sharing Agreements (PSA) with ExxonMobil, Hess Corporation and CNOOC does not confirm to this international best practice, which ultimately safeguards the interest of the nation. What it does allow is for the company to begin recovering costs for the decommissioning, more than 20 years before it is required to fund the said exercise.
It is on this premise that CNOOC has already started to add up how much it will recover from Guyana years in advance. It should be noted as well that this is being done in spite of the fact that the government of the day has to approve the decommissioning plan, which in terms of costs, could only be known at the end of the life cycle for the project.
But CNOOC is not the only one guilty of recovering decommissioning costs years in advance. Its partner and Operator of the Stabroek Block, Exxon’s subsidiary, Esso Exploration and Production Guyana Limited (EEPGL) is already recovering money too.
Highlighting this “abnormality” recently was the Center for International Environmental Law (CIEL) in its latest publication called, “TOXIC ASSETS: Making Polluters Pay When Wells Run Dry and the Bill Comes Due.” Founded in 1989, CIEL uses the power of law to protect the environment, promote human rights, and ensure a just and sustainable society.
In its report, CIEL pointed to ExxonMobil’s overview of its operations in Guyana, which shows that it may drill as many as 92 wells in the Liza One, Two and Payara oil fields alone. In fact, ExxonMobil has drilled exploration wells at more than 16 different potential production sites so far. CIEL said it should be noted that ExxonMobil drilled the wells at an average water depth of 1782 meters (5846 feet) and some are as deep as 2735 meters (8973 feet). The organization also highlighted that the eight wells already in production at Liza One are drilled in water depths of 1500-1900 meters (4921-6234 feet).
To put those depths into context, CIEL noted that the US Bureau of Safety and Environmental Enforcement defines any well drilled in more than 122 meters (400 feet) of water as “deep water,” and the average water depth of wells in the North Sea is 185 meters (607 feet).
With the foregoing in mind, CIEL said it is critical to note that decommissioning such deep offshore wells is expensive. While the cost depends on a number of factors, including ocean conditions, CIEL said it is significantly more expensive than the closure of conventional onshore wells. It said too, that estimates consistently place the costs of deepwater decommissioning in the tens of millions USD per well, once all associated measures are taken into account.
But what alarmed CIEL the most is that the Production Sharing Agreement for the Stabroek Block does not require the companies to set aside any money for decommissioning in a dedicated fund, or provide any form of financial security while the wells are producing. Instead, the Agreement permits the ExxonMobil-led consortium to deduct the estimated future costs of decommissioning as current operating expenses, according to a schedule based on production rates, without demonstrating that it has reserved those funds for future use.
CIEL also cited an independent report by the Institute for Energy Economics and Financial Analysis (IEEFA) which estimates that ExxonMobil could charge Guyana as much as USD$227 million or $47B in amortized abandonment costs between 2020 and 2024.
With this in mind, the Center for International Environmental Law noted that the recovered costs ultimately diminish the amount of profit oil shared with Guyana, effectively passing the bill of decommissioning on to the government up front.

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