‘Pay attention to Exxon’s accelerated development’

Jul 08, 2022 News

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– Former Finance Minister stresses urgent need for robust oversight

By Zena Henry

Kaieteur News – Record high oil prices have seen operators chasing a speeding bullet to capitalise on returns. But the current situation could leave the country’s already vulnerable oil industry even more exposed, former Finance Minister Winston Jordan has opined.

Jordan is concerned that the higher prices have encouraged oil companies to increase production, while earning more money from its sale of the resource. The problem however, is that Guyana is not on par with the accelerated pace because it does not have the in-house expertise to monitor the sector and to ensure that the bills coming in from the operators are legitimate.

ExxonMobil and its partners have expressed satisfaction in its local investment ahead of climbing inflation rates that are at this point, a major hindrance to developing and thus increasing resource production to balance out oil prices. This means that Exxon and its partners’ returns from their investment in the Liza 1 and 2 wells is significantly higher than the sums the companies would have pumped into the project. To further capitalise on the high prices, the companies are drilling more and are expected to bring on stream new floating production storage and offloading (FPSO) every year, possibly until the 11billion barrel ‘line of sight’ oil is covered by the estimated 10 FPSOs.

“For us, that 75 percent recoverable investment is coming to the oil companies faster than they would have expected while Guyana does not have the personnel in place to examine and check for the legitimate cost,” the former finance minister explained. Jordan told the newspaper that what is also of concern is the country’s inability to ensure that other cost, for example, from other investments, are not appropriated to the faster 75 percent payback, “given the open nature of the contract.” Jordan was referring to among other things, the lack of ring-fencing in the Stabroek Block Production Sharing Agreement where revenue from one project is not protected from being utilised in another. With the country’s dismal capacity in securing the oil industry, the former minister is adamant that the country may never draw down on the bigger profits that would be slated for Guyana in the future if certain measures are not put in place.

To amplify his point, the former finance minister argued that the folly situation existing is that almost four years after first oil, “Guyana is still to have personnel in crucial areas of oversight. Right now,” Jordan continued, “we rely heavily on Exxon to tell us what we want to know.” He suggested however that Exxon would do no such thing as it obviously would operate in its best interest.

Given the dire situation, Jordan thus questioned the government’s purpose for shunning the 2019 US$20M World Bank loan that was meant to enhance the local legal and institutional frameworks and strengthen the capacity of key institutions to manage the oil and gas sector.  “I don’t know why they have not used the loan. They have not hired the requisite personnel,” Jordan charged. He said that with the right people in place, Guyana could recover tremendously more money since the technical and forensic personnel would be looking out for the country’s affairs. The openness of Guyana’s PSA is a real worry for the country, he emphasised. The lack of ring-fencing, the need for specialized personnel is among the troubling areas to be addressed. “And that’s where we should be really concerned,” the former minister opined.

In March, Guyana received a downgraded score on the performance of the World Bank Guyana Petroleum Resources Governance and Management Project (GPRGMP) loan as three years after the former David Granger led administration secured the loan the new administration is yet to utilize the money for the important task of building local oil and gas sector capacity. The Irfaan Ali led administration has instead highlighted their intension to “refine the scope of the project to bring it in line with current government priorities.” Those priorities are still be revealed by the government.  In the meantime, Guyana remains overexposed to oil company exploitation, some oil and gas experts have warned.

Guyana moved from ‘Moderately satisfactory’ to ‘Moderately Unsatisfactory’ with around 24 percent of the total credit disbursed and no disbursement requests received from the Bank since October 2020. As late as December 2021, the World Bank said that government highlighted its intention to “refine” the loan. The US$20M project has four components: Component A – Enhancement of Legal Framework and Stakeholder Engagement: (US$3.20 M), Component B – Capacity Building of Key Institutions: (US $10.70 M), Component C– Enhancement of Fiscal Management Systems: (US$3.50 M), and Component – D. Project Management & Project Preparation Facilities: (Cost $2.60 M). The Bank said it remains on standby awaiting any guidance from the Guyana government.

 

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