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‘Guyana playing musical chairs with ExxonMobil on decommissioning’ – U.S. financial analyst
…asks when the music stops, who will be left with the benefits and who will be left without a chair?
Kaieteur News – Director of financial analysis at the Institute for Energy Economics and Financial Analysis (IEEFA), Tom Sanzillo, has raised concerns about Guyana’s oil industry’s future when it comes to decommissioning as regard who will ultimately bear the cost to clean up the ocean floor.
Director of financial analysis at the Institute for Energy Economics and Financial Analysis (IEEFA), Tom Sanzillo
He made those comments in a recent Financial Times article. Decommissioning, the process of restoring the ocean’s floor after oil and gas projects conclude, is a complex and costly undertaking, involving plugging oil wells, removing structures, and restoring surrounding areas.
ExxonMobil Guyana, operator of Guyana’s Stabroek Block with over 11 billion proven barrels of oil, has been setting aside funds for decommissioning according to the 2016 Production Sharing Agreement (PSA). However, Sanzillo likens this situation to a game of musical chairs. To this end, he asked: “when the music stops, who gets the benefit and who is left without a chair?”
Sanzillo has extensive experience in the oil, gas, petrochemical, and coal sectors, including company and credit analyses, facility development, oil and gas reserves, stock and commodity market analysis, and public and private financial structures. He also has 17 years of experience with the City and the State of New York in senior financial and policy management positions.
Graham Kellas of consultancy Wood Mackenzie noted that while it’s uncommon for countries not to establish a fund for decommissioning costs, large companies like ExxonMobil might cover the expenses without one.
However, he cautioned that, “But it does raise the risk of [ExxonMobil] selling the assets late in life to a smaller company that then defaults on the decommissioning.”
The Commonwealth Secretariat has warned that decommissioning costs could erase any benefits from an oil project and emphasized the importance of the “polluter pays” principle. The Commonwealth had said too, “It would be unreasonable for developing countries with low capacitated regulators and weak legal requirements to shoulder the significant financial, environmental, and social costs. This would easily wipe away any benefits seen from a project.” As such, she added that the international community must be extremely vigilant and united to ensure that the ‘polluter pays’ principle is adhered to.”
Furthermore, during an engagement with the media last June, ExxonMobil Guyana 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. However, the oil giant assured nonetheless, that when Guyana needs that money for clean-up, the money will be handed over.
- billion, decommissioning, Director of financial analysis at the Institute for Energy Economics and Financial Analysis (IEEFA), Financial Times article, Tom Sanzillo
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