Guyana has not conducted feasibility studies for Exxon’s US$40B plus projects - Jagdeo

Guyana has not conducted feasibility studies for Exxon’s US$40B plus projects – Jagdeo

Aug 06, 2023 News

…says this is the job of oil companies

Kaieteur News – The importance of oil producing states conducting feasibility studies, particularly to weigh the cost of each development against benefits to the country was recently highlighted by the Commonwealth in a new report. Guyana however to date has not conducted such a study for any of the five projects it has approved for oil giant, ExxonMobil which collectively carry a price tag well above US$40 billion.

Vice President Bharrat Jagdeo

This was explained by Vice President Bharrat Jagdeo on Thursday during a press conference at Freedom House.

The VP was at the time responding to a question from Kaieteur News on whether or not government has been conducting feasibility studies to compare ExxonMobil’s sanctioned oil projects to other similar projects approved internationally, and more importantly, if an analysis was being done weighing the cost of each development against the returns to the country.

Jagdeo in his response acknowledged that the Commonwealth Reports are excellent tools to guide its member states as these are compiled by specialists in the sector; conversely he pointed out that Guyana has been taking a different approach in this regard.

He explained, “What we did, we hire practitioners and people specific in the industry, so when we did the plans that are submitted before we license new operations, we do an internal review and then we have other external specialists who review these documents.”

This newspaper followed up with the VP for clarity on whether Guyana has taken on the task of comparing the cost of its offshore oil projects to the profits when he pointed out that a feasibility study is the responsibility of the oil companies. The former President explained that since the companies are investing into oil production and Guyana has not contributed to this process, it is their job to ensure the investment is secured with a decent return.

According to him, “The feasibility studies now are done by the oil and gas companies because they have to raise the funding for that and the funding is of a massive magnitude, we have gone through this before. One project could cost US$10 billion, twice the size of all our accumulated savings in our banking system.”

Jagdeo reminded that the cost of the oil projects are currently financed by the Stabroek Block partners, ExxonMobil, Hess and CNOOC through equity or loans. As such he noted, “Their financiers have to make sure that they are gonna get a decent return on these projects, so that’s on the financial feasibility side.”

Meanwhile, on the technical feasibility of the oil projects approved to date, the Vice President said that the oil companies would present their plans to the government which would be followed by a rigorous review process. “On the technical feasibility, they are the ones presenting the proposals to us. Now when those come in on the technical side, that’s when the review takes place on the technical feasibility,” he said.

In the meantime, the Chief Director for the petroleum sector said that the administration is in the process of strengthening the regulatory framework for the industry, through the Petroleum Activities Bill along with a new Production Sharing Agreement (PSA) that would allow the country to have a greater input when it comes to the project related studies.

He nevertheless made it clear, “Normally, an investor, if you are doing a mine here or you are coming in to do an agricultural project, you do your feasibility study, it’s your investment, your money that you are putting in. You may come to government and say I need the following concessions…but if you fail, if you lose your money, we are not out of pocket, we are not putting in a cent into these ventures, we are not out of pocket.”

Likewise with the oil sector, he reasoned, “So assuming that the price of oil goes now to US$28 a barrel, the losses would be borne by the companies themselves, so they have to be cautious on that so I don’t see why it’s any different for the oil and gas sector. It’s the people who risk the money…they have to, trust me, they would ensure that these projects they can make money from them too.”

Jagdeo added that he is more concerned about Guyana benefitting from a greater take, hence this will now be secured in the new PSA being drafted. It must be noted that the new PSA will not extend to the oil rich Stabroek Block.

More importantly, while the Vice President seems relaxed with not ensuring Guyana weighs the cost of the oil projects against its profits since the financing is sourced through the petroleum companies, one must be weary of the fact that these costs are ultimately borne by Guyana as they are repaid through cost oil.

In the absence of such a study being conducted, the country would not know prior to its approval if the costs would outweigh the profits.

Commonwealth advice

According to the Economic Advisor attached to the Commonwealth Secretariat’s Ocean and Natural Resources Advisory Division, Naadira Ogeer, governments should take care to do independent analysis that determines the feasibility of such projects versus the gains to citizens.

In a handbook developed to help government officials make the best decisions for its people when reviewing a company’s Field Development Plans (FDPs), the expert stressed the need for there to be detailed reviews done by state authorities or the experts they hire.

The official said FDPs are documents that ought to be treated with a high degree of importance as they explain how a company will go about developing multi-million dollar projects. Taking this into account, Ogeer said it is critical that the government has a clear appreciation of how revenues will be impacted by changes in key areas of uncertainty e.g. pricing, production fluctuations, and operating costs.

“Ideally, the government should have independent economic models and experts to conduct independent evaluation of the feasibility of a project and the returns to the country,” Ogeer stated in the handbook published by the Commonwealth Secretariat.

For more, see link below.

https://www.kaieteurnewsonline.com/2023/07/23/govts-should-have-independent-study-done-on-oil-projects-feasibility-vs-returns-to-citizens-commonwealth-secretariat-advisor/