Exxon must now put decommissioning fund in place for all Guyana projects

Exxon must now put decommissioning fund in place for all Guyana projects – Minister Bharrat

Nov 16, 2023 ExxonMobil, News, Oil & Gas

Kaieteur News – Natural Resources Minister, Vickram Bharrat confirmed on Tuesday that ExxonMobil will now be required to follow a series of robust decommissioning rules as outlined in the nation’s Petroleum Activities Law.

Natural Resources Minister, Vickram Bharrat

While the new rules only came into effect in August, the minister said they shall apply to all of Exxon’s projects in the Stabroek Block, including those passed prior to the enactment of the legislation. The minister made the foregoing disclosure following clarifications from Kaieteur News during his end-of-year press conference.

In the oil and gas industry, decommissioning refers to the process of safely dismantling and disposing of offshore and onshore oil and gas facilities once they reach the end of their productive life. This involves cleaning up the site, removing equipment, plugging wells to prevent leaks, and restoring the environment as closely as possible to its original state. This process is also crucial for minimising harmful environmental impacts, ensuring safety, and complying with regulatory requirements. Decommissioning is also a costly exercise, sometimes demanding billions of US dollars hence countries are often advised to mandate that oil companies set aside money in a fund for this purpose. This fund ensures that the country is not left to carry the burden of handling those costs which ought to be covered by the oil companies.

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 law states that the company would have to submit for the minister’s 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 have to 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. With the foregoing provisions in play, ExxonMobil would now be required to have a decommissioning fund in place for its three producing projects at the Liza Phase One, Liza Phase Two and Payara platforms. Those projects are expected to produce over 500,000 barrels of oil by year-end. They each carry a 20 year production cycle.