Exxon takes Guyana’s clean up money to put in project as loans

Jun 02, 2022 News

…Jagdeo calls move productive use of funds

By Gary Eleazar

Kaieteur News- Guyana began oil production in December 2019 by Esso Exploration and Production Guyana Limited (EEPGL) and under the deal signed—the Production Sharing Agreement—the company has been taking out money from day one of production to set aside as a decommissioning fee.

Vice President Bharrat Jagdeo

This in order to remove its equipment and ancillary equipment at the end of the life of the project and to return the environment to the state it was in before exploration and production began.

This publication has since learnt that EEPGL—ExxonMobil Guyana—has in fact been utilizing that money which is being deducted from cost oil. When confronted with the report, Vice President Bharrat Jagdeo told reporters however, “It’s not like Exxon would put the money in there and leave it; the funds are fungible so to the extent that it is utilised and it reduced the cost of say borrowing which is ultimately a cost to be borne by the company then ultimately that would be seen as productive use.”

He said, “…if they use it for private purposes alone then that would not be seen as a productive use.” It has since been noted that such a situation meant that ExxonMobil is currently deducting money from cost oil for decommissioning at the end of the lift of the project—in another 15 years—and would have been using the money on the project, which is then deducted with interest again, as a loan that has to be repaid by the company.

International Lawyer, Melinda Janki

According to Vice President Jagdeo, “you always have to provide for decommissioning, you can do a number of things as I said before we would have to look at the net take.”

He noted however, “I don’t want to get into every component and how it would evolve but the net take has to approximate a global situation where for a country of similar circumstances, clearly you have to have this set aside, it is, do you set aside all of it at the end, all of it at the beginning, or do you every year make allowance to do that.”

It has been estimated by international experts that throughout the life of the project in excess of US$3B would be deducted from cost oil to go towards the decommissioning of the project.
Poignantly, ExxonMobil is yet to develop a decommissioning plan for any of its project and has in fact signalled its intention to abandon all of its subsea equipment on the sea floor and that it is expected that the production ship—the Floating Production Storage and Offloading Vessel—the Liza Destiny and others, would be towed away.
This much can be gleaned from the Project Summaries for the projects already producing, Liza I&II in addition to the Payara, Yellowtail and Urau developments.
The abandonment of the equipment was also confirmed by In Country Projects Manager Anthony Jackson during a public scoping exercise held at the Umana Yana recently.
Jackson in response to enquiries on the decommissioning aspect of the project sought to justify this position by pointing to the fact that in some countries, it has been found that marine life by the end of these projects would assimilate into the environment, and such removing the equipment could do more harm than good.
He told those in attendance that what has been observed over the years is that by the time a project comes to the end of its life, marine life such as barnacles and corals would have already attached themselves to the equipment, and as such ripping them off the seafloor could cause more damage to the environment.
Decommissioning is a normal and planned petroleum activity and generally involves the plugging and permanently closing off wells, the safe removal of equipment, infrastructure and property and importantly restoration of the environment at the end of the life of a project, in this case (Urau) 25 years.
The expectation is that the subsea umbilicals, risers, and flowlines are commonly referred to as SURF components “will be detached from the FPSO and abandoned-in-place on the sea floor.”
According to ExxonMobil, this will be done in consistence with “industry best practices at the time of decommissioning.”

The FPSO, EEPGL said, “is expected to be towed away, and the FPSO mooring system will be disconnected and abandoned on the sea floor—consistent with standard industry practice.”
Pressed on the vague language being used in the documents that leaves a vacuum of information for public consumption, Jackson noted that this was done in a deliberate fashion.
According to Jackson, this is the case since, at present there are numerous uncertainties and unknown factors in order to present details with more specificity.
He reminded too that the decommissioning plans are yet to be developed. When asked to provide what informs what amount is being deducted from Cost Oil for Decommissioning, Jackson was unable to provide a definitive answer.
He further contended that he was unable to, at the time, provide an equation that determines the amount of money to be deducted for the purpose of decommissioning.
Under the Production Sharing Agreement that has been guiding the operations of ExxonMobil since 2016, the company would have already begun deducting money from its operations for the decommissioning activities from the oil being produced.
Environmentalist and International Attorney at Law, Melinda Janki in December last, had lamented the arrangement.
She had noted in a public missive that at the end of production, the oil wells must be decommissioned i.e. permanently shut down and securely capped so they do not leak and pollute the Atlantic Ocean.
She had noted that a financial report by the global think tank IEEFA shows that by 2024, Esso will have deducted US$227M for decommissioning in Liza 1 alone.
“Obviously, Esso will keep on taking out decommissioning money for as long as it can.”
She had also noted that there is no guarantee that Esso will produce this decommissioning money when the wells have to be shut down.
“There isn’t even any guarantee that Esso will exist at decommissioning. The oil industry is known for leaving host countries to clean up its mess. ExxonMobil could wind up Esso and walk away, leaving Guyana to pay for decommissioning.”
The wells are ultra-deep and very dangerous and decommissioning is expensive, she reminded.
Those concerns had been raised at a time when Exxon was producing from the Liza I project.
ExxonMobil Guyana recently commenced public consultations having submitted an application for environmental authorisation for its fifth development in the Stabroek Block its Urau-1 field development.