Home Top Stories Exxon, partners to bear full responsibility for decommissioning – EEPGL VP
…as agreement being drafted
Assuring that an agreement is being drafted to make the decommissioning of their projects in the Stabroek Block decades from now as smooth as possible, an Esso Exploration and Production Guyana Limited (EEPGL) Vice President has made it clear that the Government bears no responsibility for this.
In a recent sit down with the media, EEPGL Vice President and Business Services Manager, Phillip Rietema explained that even in the unlikely event that his company, a subsidiary of US oil giant ExxonMobil, does not profit from its projects, there would still be no liability or debt to Guyana.
“There’s no responsibility to Guyana, the Government of Guyana for our investments. The investments are basically paid by our investors in the projects. And it’s the projects themselves that need to pay back the investment,” the EEPGL Vice President said.
“If for some reason and we think this is unlikely, but if for some reason the projects don’t pay back, there would be no liability, no debt, to the people of Guyana,” Rietema further explained during the sit down with the media.
As Rietema explained, decommissioning costs (estimated to be about $17 billion) are a very important part of 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.
“Under the accounting rules, each year we have to put aside a small amount as we build to that future value. We estimate, using our best information today, what the value will be in 20/30 years’ time. And then what you see in the financial statements is a provision for that amount. ExxonMobil and our co-venturers are responsible for those decommissioning costs.”
“And it is important that overtime, we put the structures in place to ensure that we can pay for those costs. We have an agreement that is being drafted, called a decommissioning security agreement. And that agreement will set the principles by which the partners will set aside the funds to pay for those decommissioning expenditures and to ensure that all the funds are in place to pay for the costs when they are incurred a couple decades from now,” he also explained.
ExxonMobil is expected to use revenue from its production in order to recoup its capital investment. This is categorised as “cost oil”. Whatever remains of this is the “profit oil,” which Guyana will have to split between the oil company and its associates.
Decommissioning, on the other hand, is a process consisting of the removal of industrial installations and any relevant structures that have come to the end of their productive life in a certain industry, particularly oil. Decommissioning is covered under the Production Sharing Agreement (PSA) Exxon signed with Guyana.
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 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 for the life of the companies involved.
ExxonMobil has said it anticipates at least six projects offshore Guyana will be online by 2027, with developmental drilling recently starting on the second one, the Liza Phase 2 project. Production has already started in the second phase, with the Liza Unity Floating Production Storage and Offloading (FPSO) vessel in operation.
The third project – the Payara Development – will meanwhile target an estimated resource base of about 600 million oil-equivalent barrels and was at one point considered to be the largest single planned investment in the history of Guyana.
Meanwhile, the Yellowtail development, which will be oil giant ExxonMobil’s fourth development in Guyana’s waters, will turn out to be the single largest development so far in terms of barrels per day of oil, with a mammoth 250,000 bpd targeted.
The oil rich Stabroek Block is 6.6 million acres (26,800 square kilometres). Exxon, through subsidiary EEPGL, is the operator and holds 45 per cent interest in the Block. Hess Guyana Exploration Ltd holds 30 per cent interest, and CNOOC Petroleum Guyana Limited, a wholly-owned subsidiary of CNOOC Limited, holds the remaining 25 per cent interest. (G3)