Exxon’s recovery of US$1.3B plus investment in Wales gas-to-power project violates int’l best practices – Industry Expert

May 08, 2022 News

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Kaieteur News
By Kiana Wilburg
Vice President, Dr. Bharrat Jagdeo has said that ExxonMobil Guyana will be able to recover its US$1.3B plus investment in the imminent gas-to-power project from Cost Oil; in other words, Exxon would be recouping its investment in the gas project from the country’s oil earnings.
Industry stakeholders are however concerned about this arrangement and worry that the government has not thought through the economic impacts.
Specifically, one industry expert told Kaieteur News that the arrangement leaves Guyana with an even smaller piece of the pie since cost oil should only be associated with expenses incurred for the extraction, development, production and sale of the oil in a specific oil field.
The analyst posited too that the Government of Guyana should not allow Exxon to make a case for recovering its investments in the gas project via cost oil. “So can you imagine what Guyana is doing to itself? It already has a small share of the oil pie with the provisions of the contract. But now it is saying, ‘Come and take more of it.’ You are allowing them to recover the cost of the pipeline, then they will charge you to transport your own gas, and then they will be one of the third parties to buy the gas when the Government sets up the Natural Gas Plant at its own expense.”
The analyst said Guyana is, once again, asleep at the wheel especially when it comes to international best practices on cost oil and on what should be allowed as recoverable costs. “Industry best practices do not allow a company to get away with such blatant advantage on a country. It should not be allowed!”
Kaieteur News also reached out to Chartered Accountant, Christopher Ram who has had a dedicated column on the oil and gas sector in the Stabroek News which is also published on his blog. This newspaper sought Ram’s comments on what some are calling a breach of contract and violation of international standards. He pointed out that if one examines the provisions of the Stabroek Block Production Sharing Agreement (PSA), particularly at Article 12 (F), it states, all costs and expenses incurred by the Contractor in the production, use, and or disposal of the associated gas of an oil field and those incurred in carrying out any feasibility study on the utilisation of the excess associated gas shall be charged to the development cost of the oil field and shall be Recoverable Contract Costs.
Ram said while the Annex to the infamous Petroleum Agreement does not explicitly deal with costs associated with the production of gas, the Agreement is so loosely worded as to allow most costs to be deducted, including those related to gas. Ram also drew attention to the Agreement which gives first call on the gas arising from the petroleum operations to the oil companies. Ram said this is “the moral and economic equivalent of giving up our independence.”
The Government he says, “has the opportunity, duty and responsibility to redeem our patrimony not by any renegotiation or some hostile action but simply by using the Petroleum Act to set conditions to the granting of licences, including matching revenue with expenses and introducing some measure of ring-fencing.”
Ram lamented that it is for the Government to explain to the nation why its strategy for the exploitation of our non-renewable resources seems so similar not only to those of the Coalition but to Exxon as well.
US$1.3B INVESTMENT
Kaieteur News had previously reported in April that ExxonMobil’s subsidiary- Esso Exploration and Production Guyana Limited (EEPGL), is responsible for the installation of the offshore and onshore pipelines associated with bringing gas to shore from the Stabroek Block. To do this, the company said it would cost a whopping US$1.3B.
Specifically, EEPGL said in the Environmental Impact Assessment (EIA) for the project, that its investment is expected to be more than the foregoing sum since it is still in the process of evaluating certain costs. It warned, “A higher certainty cost estimate will be developed after receiving and negotiating all major contracts.”
Additionally, the project summary notes that Esso Exploration and Production Guyana Limited, on behalf of itself and its coventurers (Hess Guyana Exploration Limited and CNOOC Petroleum Guyana Limited), is awaiting an environmental authorisation from the Environmental Protection Agency (EPA) for the gas-to-power project.
It was explained that the project will use natural gas produced from the Liza One and Two projects in the Stabroek Block, and transport that resource via offshore and onshore pipeline networks to a natural gas power plant. EEPGL was keen to note that the Government of Guyana will be handling the construction of the power plant. It is therefore subjected to a separate Environmental Authorisation process. Thus, the plant is not included in the EIA (with the exception that it is considered as part of the cumulative impact assessment).
Expounding further, EEPGL said the project will involve capturing associated gas produced from crude oil production operations on the Liza Phase 1 (Destiny) and Liza Phase 2 (Unity) Floating, Production, Storage, and Offloading (FPSO) vessels, transporting approximately 50 million standard cubic feet per day of rich gas via a subsea pipeline and then to an onshore pipeline to a natural gas liquids (NGL) processing plant (NGL Plant), treating the gas to remove NGLs (i.e., propane, butane, and pentanes+) for sale to third parties, and ultimately delivering dry gas meeting government specifications for use at the power plant.
Construction is expected to begin as soon as possible after the oil company receives all necessary authorisations with a target date of August 2022 for start of NGL Plant site preparation, and will take approximately three years. The combined offshore and onshore pipeline system is targeted to be ready to deliver rich gas by the end of 2024, and the NGL Plant is targeted to be operational by mid-2025.
The project has a planned life cycle of at least 25 years and is expected to employ up to 800 workers at peak during the construction stage, approximately 40 full-time equivalent workers during the operations stage, and approximately 50 workers during the decommissioning stage.

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