Govt. keeps Guyanese in the dark on impacts of abusive provisions in Stabroek Block deal

Dec 25, 2022 News

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Three years into first oil…

• All oil laws remain outdated
• Citizens still to know the effects of zero ring-fencing and Exxon’s recovery of decommissioning costs
• Types of expenses being deducted such as interests rates and costs of wells still unknown
• Insurance coverage from Exxon for oil spills ‘in talks’
• No details on retirement of US$900M in pre-contract costs
• Impact of payment of gas-to-energy pipeline from cost oil still an unsolved mystery

Kaieteur News – On December 20, 2022, Guyana marked its third year as an oil-producing State. The South American producer has since earned labels as being the “gateway to the world’s fastest growing super basin,” and according to the International Monetary Fund (IMF), “it is the fastest growing economy of the world on a per capita basis.”

Many Transparency Advocates are the least bit impressed by such titles, claiming that they distract from the real questions at hand. These include: How transparent and accountable has the government been about its decision-making for the sector? To what extent has the administration sought to educate its people on the shortcomings of the Stabroek Block deal struck with ExxonMobil?

Stakeholders such as Opposition Member of Parliament, David Patterson state categorically, that the Government has built a Chinese wall between citizens and what really obtains in the contract.

To date, Guyanese have no clue about what ring-fencing provisions are, much less how their absence in the Stabroek Block deal affects profits to be split between Exxon and the State. Ring-fencing provisions, for those unfamiliar with the expression, explicitly outline that a company cannot take the money earned from one project to satisfy the expenses of another ongoing project.

As an example, if ring-fencing provisions were part of the Stabroek Block PSA, ExxonMobil and its Partners would not be able to use revenues made in the Liza One and Two Projects to cover expenses for many of its exploration projects. Liza One and Two revenues would be restricted to covering any related expenses for those projects alone. The upside of this approach is that it then makes more money available to be split between the companies and the State. The PPP/C Government has said nothing will be done to change this fiscal flaw.

Guyanese are also in the dark when it comes to decommissioning costs. When oil companies have extracted as much of the oil as they possibly can from a well, it is standard practice that they safely cap and abandon it. This part of the oil and development process costs millions of dollars. The revenue has to be set aside in a special account, held by the government to cover these costs when the time comes. The agreement for the Stabroek Block jumps off the precipice of international best practice, and into a bottomless pit of abnormality on this front.

ExxonMobil and its Partners which include Hess Corporation and CNOOC Petroleum Guyana Limited are able to benefit from a lopsided system that allows them to keep decommissioning funds in their pockets.

Guyana must now hope, pray, and trust that when the time comes, Exxon will hand over the sums needed. What is also egregious about the entire arrangement is that the government, nor the people, knows how much Exxon will be taking out annually for decommissioning. No one knows if the company is taking out more than it should. Here again, the PPP/C Administration has said that it will not touch this aspect of the deal.

Of significance is the fact that Guyana does not know what types of expenses are being deducted such as interest rates on loans. Government has the power to remove this veil of secrecy with the issuance of a cost recovery statement every quarter from Exxon but it does not.  To date, Guyanese also don’t know the cost of exploration wells or even how much of the US$900M in pre-contract bills Exxon has recovered.

Also troubling, is the fact that Guyana continues to push its oil development at a feverish pace in the absence of a parent guarantee for oil spills from Exxon and Partners. There is only a US$600M per occurrence coverage which stakeholders have lambasted as inadequate.

On the Legislative front, Guyana is yet to address key reforms to the Petroleum Exploration and Production Act, No 3 of 1986; the Petroleum Exploration and Production Act Regulations, 1986, the Petroleum Exploration and Production Act, 1998, the Environmental Protection Act, and the Occupational Safety and Health Act.

Various documents for the sector also remain in draft mode. These include but are not limited to the following: an Upstream Petroleum Sector Policy, Petroleum Oversight and Regulation Legislation, Petroleum Revenue Management Legislation, Upstream Petroleum Commission Bill 2016 (Draft), draft Petroleum (Environmental Protection & Pollution Control) Regulations, and draft Petroleum Health and Safety Regulations. In his 2016 report, Energy Expert, Anthony Paul stressed the need for Guyana to close legislative and institutional gaps as they leave the country open to losing significant value.

He said: “Both the Legislative and Institutional frameworks and their component parts are critical for successful management of the resource. Given the pace of change, Guyana is at risk of losing very significant value unless these gaps are closed rapidly.”

As for Guyana’s gas-to-energy project, Vice President, Bharrat Jagdeo had said a portion of the nation’s oil would be used to repay ExxonMobil for its investment in a pipeline that will be connected to the Liza Unity and Liza Destiny vessels offshore to processing facilities onshore. That pipeline would cost upward of US$1.3B. The Government has not explained what impacts this will have on the profits to be split from the Stabroek Block Project.

Taking these and other critical matters into consideration, stakeholders are of the view that Guyana is woefully lacking in the proper governance framework needed for the sector.

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