Exxon took out billions in 2022 to clean up 3rd and 4th projects without pumping a drop of oil yet

Jul 04, 2023 ExxonMobil, News, Oil & Gas

Kaieteur News – Guyana has commenced paying ExxonMobil and its co-venturers Hess and CNOOC millions of US-dollars in decommissioning costs, to clean up the third and fourth developments in the Stabroek Block, even though these projects are to commence oil production.

Decommissioning refers to the cleanup and restoration of the ocean floor, following the life of an oil project. It involves the removal of the subsea umbilicals, risers, and flowlines (SURF) and other technical equipment used during the process of oil extraction. However, although the third and fourth projects yet to commence production activities, the financial documents from the oil companies for 2022 revealed that monies were deducted last year for decommissioning.

According to the financial statement provided by China National Offshore Oil Corporation (CNOOC): “During the period ended December 31, 2022, additions to decommissioning and restoration provisions include the cost for one new development well in Liza Phase One, six new development wells in Liza Phase Two, 14 new development wells in Payara and four new development wells in Yellowtail that spud during the year.”

Importantly, the third Stabroek Block project, Payara will commence production activities in the last quarter of this year. Meanwhile, the fourth development, Yellowtail is not expected to start up until 2027.

It is also important to note that decommissioning funds will not be required until 20 years after the project would have started, since these resources would be used to restore the environment until production activities cease at the wells. The Environmental Impact Assessments (EIAs) submitted by Exxon to the Environmental Protection Agency (EPA) had indicated that the oil projects have a lifespan of 20 years. In the meantime, the oil companies have been deducting monies annually to pay for the decommissioning activities. Guyana has however not only erred by allowing the funds to come out at least a decade before they are actually needed but the country has allowed the Stabroek Block partners to be in control of the millions of US-dollars, rather than control the fund itself.

This has been described as a loophole in the Production Sharing Agreement (PSA) signed with ExxonMobil and its partners, since countries have often been left to foot the bill for its decommissioning activities after the petroleum companies leave.

ExxonMobil, Hess and CNOOC each took out monies last year towards future decommissioning activities. ExxonMobil alone deducted $49.8 billion or US$237 million towards this future expense according to its financial statements for 2022. It was also stated that for 2021 some US$81.3 million was directed to scheduled decommissioning activities. Vice President Bharrat Jagdeo, who has been heading the local petroleum sector, had agreed that this particular clause is a concern and had said he does not believe that it is advantageous for ExxonMobil to hold Guyana’s decommissioning funds.

Guyana’s third Floating Production Storage and Offloading (FPSO) vessel, Payara arrived in April 2023 and is expected to commence production activities later this year.

He explained: “that is what the contract (says) it’s out now so by mid-February, we will have a completely new PSA which will address those things which we believe that are not advantageous to us because they hold the decommissioning funds.”

In the new model PSA’s currently being finalised, the government has proposed that the contractor establish an Abandonment Fund which will be overseen by Guyanese authorities. That account will see deposits made by the oil companies as agreed by the minister. Kaieteur News understands that the minister may access funds from the account in the event that contractor fails to effect environmental clean-up during the term of this Agreement, or fails to properly abandon wells or abandon facilities to the satisfaction of minister upon termination of this Agreement.

In the new PSA, which will however not extend to the Stabroek Block, oil companies will be required to contribute to the decommissioning fund ONLY AFTER 50 percent of the total oil has already been extracted. This means, there will be more profit up front for Guyana to benefit from, after 65 percent of the revenue covers the contractor’s costs/ investments.

This new provision is outlined in Section 41.16 of the new PSA. It states, “The Contractor shall initiate contributions to the Abandonment Fund when cumulative production from the field or fields associated with the abandonment in question has reached fifty percent (50%) of the proven reserves.”

It goes on to point out that deposits shall be made in equal annual installments, based on the initial and subsequent updates of the abandonment cost estimates provided by the Contractor in its abandonment plan. The annual contribution to the Abandonment Fund shall be such that the full cost of abandonment is paid to the Fund two years prior to the anticipated commencement of decommissioning and abandonment activities.