Guyana now mandates oil companies to set up Decommissioning Fund

Oct 25, 2023 ExxonMobil, News, Oil & Gas

Petroleum Activities Law Pt . 5…

By Kiana Wilburg

Kaieteur News – Imagine you’ve had a huge event at your house. After the party, you need to clean up. This may entail taking down the decorations, and perhaps fixing parts of the house that might have been damaged during the event.

In the same way, when an oil project is nearing its ends, companies can’t just leave everything as it is and walk away. They have to “clean up.” The term used for this in the oil industry is “decommissioning”. This means safely removing all the equipment used to get the oil out of the ground, like pipes and platforms. It also involves making sure the environment is protected by taking care of any leftover waste and making the area safe and clean for the future. So, it’s like the big cleanup process after the “party” of an oil project is over.

Guyana’s Petroleum Activities Law which came into effect this year sets out strict rules for companies to follow on the decommissioning of oil projects. The company would have to submit to the minister for approval, a proposed decommissioning plan and budget no later than two years before the expiration of a petroleum licence or no later than two years before the anticipated end of production.

Once that plan is approved, the minister would instruct that a Decommissioning Fund is created. The company would make contributions to that fund to ensure that when the time for “clean up” arrives, there would be adequate funds to cover the associated expenses. Importantly, the law states that the minister will dictate the terms and conditions of the fund for deposits and disbursements.

Guyana’s new model Production Sharing Agreements (PSAs) for deepwater and shallow water blocks also expound on the requirements for decommissioning. In those documents, it is noted that a Decommissioning Fund would be held at a reputable international financial institution agreed between the Minister and the oil company.

The PSAs state that the minister may access funds from the escrow account in the event that the company fails to properly abandon wells or abandon facilities to the satisfaction of the Minister upon termination of this Agreement.

With decommissioning considered a crucial phase in the life-cycle of an oil project, Guyanese authorities have been proactive in setting clear legal guidelines to manage this process meticulously. Companies are obligated to plan and budget for decommissioning, submitting these details for governmental approval.

A dedicated fund is also required to be established, ensuring sufficient resources are allocated for the comprehensive completion of the decommissioning process. This fund acts as a financial safety net, guaranteeing that the environment is safeguarded and restored, upholding a commitment to responsible and sustainable operational practices in the oil industry.