Latest update February 10th, 2025 2:25 PM
Govt’s failure to conduct feasibility studies for oil projects could result in mountain of debt – Opposition
Kaieteur News – The political Opposition has acknowledged the recent advice from a Commonwealth Specialist inviting member states of the organization to conduct feasibility studies for oil projects, specifically to determine cost versus benefits.
Economic Advisor to the Opposition Leader, Elson Low
Economic Advisor to the Opposition Leader and Spokesperson on Oil and Gas matters, Elson Low in a recent interview with this publication pointed to the importance of such an analysis being conducted by government.
Earlier this month, Vice President Bharrat Jagdeo told reporters at a press conference hosted at Freedom House that feasibility studies are the responsibility of the oil companies, since they are investing their financial resources. He indicated that this was not done for any of the five projects approved to date for American oil giant, ExxonMobil.
According to the Opposition, an assessment of each oil project is critical for Guyana, especially considering that the Stabroek Block does not include a ring-fencing provision. Such a clause would have prevented the developer from utilizing the revenue generated by one project to pay off expenses for another project. For instance, Kaieteur News reported that in the absence of a ring-fencing provision, the Stabroek Block partners last year deducted revenues from the Liza One and Liza Two projects to pay for decommissioning costs related to the third and fourth projects that are yet to commence oil production.
To this end, Low explained, “In general, it is important to evaluate the viability of each field, but as Guyana does not have ring-fencing provisions, this is vital.”
He went on to note, “Studies should be done so that we have a concrete understanding of what we should expect from each field, but also its impact on the share of revenue that goes to profit oil. We have previously spoken about spacing out developments so that the share of revenues received earlier is increased and this of course requires an evaluation of the economics of each field.”
Low believes that if the government does not regularly assess these fields, it would be unable to identify its expected annual revenues. He therefore cautioned that “Such poor planning could lead to the government being unable to meet its expected expenses or service its debt.”
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.
Be that as it may, Guyana to date has not conducted such a study for any of the five projects it has approved for ExxonMobil which collectively carry a price tag well above US$40 billion.
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