Guyana may have to pay more decommissioning funds after Stabroek Block projects ends – ExxonMobil warns

Feb 14, 2023 News

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Kaieteur News – At the end of a project’s life, oil and gas operators are required to restore the environment and cleanup the ocean floor after production activities; this process is referred to as decommissioning.

Notably, Esso Exploration and Production Guyana Limited- ExxonMobil Guyana- deducts funds each month towards this expense. The money will only be needed after the project’s life has ended, which is usually about 20 years after production commences.

At a recent stakeholder engagement, Kaieteur News asked Exxon’s Projects Manager, Anthony Jackson to explain how decommissioning costs are determined by the oil giant.

Jackson pointedly stated that while he is not an expert at all things and is not very certain on how the oil company sets its budget, based on his knowledge, ExxonMobil takes examples of other places to set a value to the decommissioning cost.

He was also keen to note that these costs, though taken out years in advance and kept by Exxon, may not be enough when the decommissioning process starts.

Jackson warned, “A lot of that cost depends on what happens with inflation, what happens with the cost of supply of vessels, what happens with fuel, there’s a lot of variabilities that will take place over the next 20 to 30 years that may impact the reasonableness of that estimate, up or down than what was put into the basis.”

It is understood therefore that Guyana must foot the additional costs associated with decommissioning. Meanwhile, in a subsequent engagement, Jackson assured that while the fund may also have excess after the process is completed, this sum will be handed over to the government.

The warning of increased decommissioning costs come even as the Commonwealth Secretariat signaled to oil producing member states that the price tag to restore the ocean floor can easily move from US-millions to US-billions.

As a result, the Commonwealth urged Governments to ensure they implement policies and regulations that would require oil and gas companies giving regular estimate on decommissioning costs. This information is contained in a report by the Secretariat titled ‘Oil and Gas Decommissioning Toolkit’.

It was reported that Guyana has already commenced the payment of decommissioning fees, even though the ExxonMobil may abandon the subsea equipment on the seafloor.

Jackson said these costs must be deducted even though decommissioning is not a fixed plan.

At previous consultations, Exxon said it may leave its equipment on the seafloor as marine life often tends to make this its new habitat. Removing these may actually cause more harm than the good the operator believes.

According to him, “Decommissioning plan is not fixed and firm but if you were to go and look in the Field Development Plan, you will see a specific number listed for decommissioning…it is possible that we have either over or underfunded that decommissioning and that is simply something that we have to accept as part of our initial uncertainty.”

The Projects Manager noted that the cost for decommissioning is agreed to by government in the Licence, thereby paving the way for it to be recovered.

He said that at the end of Exxon’s operations, the government can say that the assets are working well and have no intention to decommission. It is also possible for the equipment to be handed over to interested stakeholders too, rather than be dismantled he said. In such a situation, Jackson posited that the decommissioning fund would not be necessary.

The Projects Manager was then asked to explain what Guyana would be paying for, if the equipment would be left on the seafloor. To this, he outlined, “It’s two things we are paying for, first no matter what, if we do have to decommission the FPSO [Floating Production Storage and Offloading vessel] that is a cost and that is independent of the SURF [subsea umbilicals, risers, and flowlines].”

Jackson said that even if the equipment will be abandoned on the seafloor, at the very least, ExxonMobil must detach the risers which are the equipment that goes from the seabed floor to the surface of the FPSOs. After that is removed, he said the lines will be purged to ensure there is no water, oil or gas left there.

Thirdly, he said that the wells must be capped thereby plugging to abandon it, after it has reached its production timeline. It must be sealed to ensure there is no release of hydrocarbons to the environment.

Based on its 2021 financial statements, Exxon’s subsidiary, Esso Exploration and Production Guyana Limited (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, 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.

ExxonMobil Guyana had acknowledged that decommissioning funds are not needed until 20 to 30 years down the line. Be that as it may, the company noted that the provisions of the 2016 Stabroek Block deal allow for early recovery. The oil giant assured nonetheless that when Guyana needs that money for cleanup. It said the country would not be left to handle same.

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• decommissioning, ExxonMobil, fund, oil, Stabroek

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