Managing future decommissioning expenses

Jan 04, 2023 Letters

Dear Editor,

Exxon has been kind enough to share with the nation the initial decommissioning costs that have been put aside for the work to be done 20 years to 30 years from now. What Vice President Bharrat Jagdeo is proposing has its merits. However, I would suggest a further look at the range of royalty rates for such an operation. Providing flexibility with price movement would also allow for continued profitability at the lower end of the price spectrum.

Another alternative option for Jagdeo to consider in addition to the proposed management structure of the decommissioning funds, would be to hold the funds in a shared transparent trust account where the funds can be grown at a rate equivalent to Exxon’s weighted average cost of capital (WACC), which is currently 9.55%. This rate surpasses that of the inflation rate being experienced in the USA. We should also make these funds available for reinvestment by Exxon during the 20 to 30 years remaining on the wells that they have been set aside to decommission. Thus, the funds will continue to grow faster than inflation over the long term and also provide additional interest earnings for the country. In addition, Guyana will be able to reduce the cost of Exxon’s operations in our oil sector.

If near the end of the productive life of the well Exxon chooses to sell to another party, we can stipulate in the contract that Exxon will transfer its rights over the shared trust account to the new owner who will also be bound by the terms of the initial contract, which ensures that the funds will be used for the decommissioning process. The established trust account must be used for all additional wells with all future costs being placed within the account which will continue to earn at a minimum rate that is equivalent to the internal WACC of Exxon. This will become the benchmark rate throughout the existence of the shared trust account. This is what Exxon can do if they have exclusive rights over the funds during the 20 year to 30 year period. The proposed alternative approach will allow them to continue to have access to the funds, but the interest earned will benefit the people of Guyana while also guaranteeing full coverage of the predetermined future decommissioning costs.

Best regards,

Mr. Jamil Changlee

Chairman

The Cooperative Republicans of Guyana