$60B set aside by Exxon, partners for decommissioning

…says willing to assist Govt to set up independent decommissioning funds

With oil giant ExxonMobil and its partners in the Stabroek Block having set aside $60 billion for decommissioning purposes, the company has also indicated its willingness to work with the Government to establish independent decommissioning funds of its own.
During a recent press conference, ExxonMobil Guyana President Alistair Routledge was asked about how much money it has set aside for decommissioning purposes. Decommissioning, the removal of oil producing installations from a development at the end of its life cycle, is catered for in the Stabroek Block Production Sharing Agreement (PSA).
According to Routledge, Exxon and its Stabroek Block partners have as of 2023, put aside $60 billion that will ultimately be used for decommissioning. He also expressed his company’s commitment to aid the Government in setting up independent decommissioning funds of its own.
“To date, or at least year end 2023, $60 billion have been set aside on an accumulative basis or ultimately for decommissioning. Currently, those funds are held independently by the three Stabroek Block co-venturers. But we’re very much aware that under the Petroleum Activities Act of 2023, the Government would like to establish decommissioning funds that would be separate.”
“In order to have those funds be held independently and have the confidence that those funds would be available when needed and for the intent they were set aside. We’ll be happy to work with the Government on the establishment of those. What are the rules ensuring that international best practices are applied?” he said.
Routledge explained the process behind these funds, as well as the importance of keeping them insulated and ready for their intended purpose when needed. The oil executive noted the benefits of investing these funds wisely, in a secure, low-risk account that would nevertheless ensure returns on investment (ROI).
“It’s for projects which are in production. So, the way the funds are accumulated, is on a unit basis, based on production. So, we take the estimated decommissioning cost, which is also a moving target based on technology and the latest expectation, when that (decommissioning) will happen. Costs in the market. And then its divided by the remaining oil to be produced. And then becomes a unit of production amount that is set aside.”
“So generally, what happens with these funds, they’re set up in some independent way. Because one of the things we’ve seen in some countries, is sometimes the funds are pulled early for other purposes. So, for the security of the nation, to know the funds are available, you want to set it up independently. With Government oversight of course,” Routledge added.
ExxonMobil Guyana is the operator of the Stabroek Block and holds 45 per cent interest. Meanwhile, its other partners are Hess Guyana Exploration Ltd, which holds 30 per cent interest, and CNOOC, which holds the remaining 25 per cent interest.
ExxonMobil Guyana Vice President and Business Services Manager, Phillip Rietema had previously explained that even in the unlikely event that his company, a subsidiary of US oil giant ExxonMobil, does not profit from its Guyana projects, there would still be no liability or debt to Guyana as Exxon would bear the full cost of decommissioning.
As Rietema explained, decommissioning costs (estimated to be about $17 billion in 2022) were a very important part of ESSO Exploration and Production Guyana Limited (EEPGL)’s business and take place between 20 and 30 years into the project cycle. It is therefore important that EEPGL plan for those. This planning includes the oil companies putting aside an amount each year, as well as the drafting and signing of a decommissioning security agreement.
When it comes to decommissioning at the international level, the main legal international principles not covering decommissioning within the States’ territorial waters, where it is entirely regulated by national laws, are contained in the 1958 Geneva Convention on the Continental Shelf and the 1982 United Nations (UN) Convention on the Law of the Sea, among others.
There is also a human rights aspect to the decommissioning, especially since there is consideration of the dangerous nature of these activities on the environment and human life. And if decommissioning is not done to standard, it represents a huge risk to life and the environment.
One of the provisions in the Petroleum Activities Act 2023 that repealed the Petroleum (Exploration and Production) Act 1986, is for the licensee to be solely responsible for decommissioning, with the Minister of Natural Resources tasked with approving the decommissioning plan and budget from the licensee. (G3)