Exxon deducts more than half of Guyana’s total earnings for single cost

Jun 19, 2022 News

…country gets US$607M for two years while oil companies take US$356M to clean up alone, 18 years from now

Kaieteur News – Just one of the thousands of costs for the ExxonMobil Guyana’s oil project in Guyana is costing the country more than half of what it is earns in profits and royalty from.
This single deduction relates to the decommissioning or clean up exercise to be undertaken some 18 years from now.

Guyana’s earnings for 2020 (Source: Bank of Guyana)

Guyana’s earnings for 2021 (Source: Bank of Guyana)

According the financial statements recently released by ExxonMobil Guyana, the deductions over the last two years amounts to some US$355.7M, while the total earnings for the country from the Stabroek Block during the same period was some US$607M.
Esso Exploration and Production Guyana Limited (EEPGL) last year generated some US$12B in revenue while the country collected some US$458M, accounting for its share of Profits and the Royalties earned for the entire year.
This much is being laid bare when perusing the now public statements of profit or loss and other comprehensive income up to December 2021 for the EEPGL operations.
The company’s after tax profit for that year was recorded some US$634,936,435 or G$132.1B with its total operating expenditure which is recovered from cost oil for ExxonMobil Guyana at US$586,783,567 or $123B.
Juxtaposed with the earnings of the entire country through taxes and other revenue streams including its earnings from the Stabroek Block—US$458M—it would mean that the EEPGL—ExxonMobil Guyana—operations last year earned more than the entire country put together.
In 2021, Guyana earned as a country, a total of US$1,690,115,384, or G$351.5B.
It would mean that the Stabroek Block production in fact generated more income than the country collectively.
In 2020, the country had earned for itself US$149M in Royalty and Taxes. As such, it would mean that for the two full years of oil production, the county earned for itself, some US$607M.
Just one of the costs deducted from ExxonMobil Guyana— decommissioning is pegged at a whopping US$355.7M or considerably more than half of the country’s total earnings for the entire year.
Based on its 2021 financial statements, EEPGL recovered $15.2B in 2020 and $17B in 2021 for decommissioning costs associated with the Liza One Project. It therefore means that its total take for the two years was US$160M.
Its partners also recovered monies too. Though their financial results have not been made public as yet, Kaieteur News was able to calculate their take based on the percentage of working interest they hold in the Stabroek Block. With Hess’ 30 percent stake, it recovered approximately US$106.7M while CNOOC’s 25 percent working interest would be equivalent to US$89M being recovered for decommissioning.
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.
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 had previously reported that ExxonMobil Guyana has in fact been utilising that money which is being deducted from cost oil. When confronted with the report recently, Vice President Bharrat Jagdeo had 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.
Jagdeo had argued, “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.”
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 as 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 FPSOs, 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.”