Payara production license superior to APNU/AFC approved Liza 1, 2 – Jagdeo

…as PPP secures vastly improved terms

With the Opposition – A Partnership for National Unity/Alliance For Change (APNU/AFC) criticising the recently signed Payara license, Government has had cause to do side by side comparisons of the license APNU/AFC approved when they were in Government.

According to Vice President Bharrat Jagdeo, a comparison with the Payara license and the license for Liza Field 1 and 2 will show that the People’s Progressive Party (PPP) were able to secure far improved terms compared to the Opposition.
One significant improvement highlighted by Jagdeo was the layers of reporting ExxonMobil must do, something that the Government has enshrined in the Payara license. The license mandates that ExxonMobil supply daily production statements to the relevant Minister with respect to the Stabroek Block. The statements must include disaggregated figures for gas and petroleum production.
“You will see the massive improvements and how we have moved to protect our patrimony, not necessarily from the discal perspective, because that is subject to another agreement, but definitely in terms of making sure we can adequately manage this area, through information flow to make sure we’re getting our fair share of the deal,” Jagdeo explained.

“Secondly, to see that the development offshore is done in an orderly fashion. Thirdly, that we do it in an environmentally safe manner. Fourthly, that liabilities are not accrued to the State. That should be those of the oil companies. And insurance. Strengthening those provisions.”

Flaring
Another major difference is the prohibition of routine flaring, which has negative effects on the environment. Jagdeo noted that while some have contended that Exxon has wiggle room to flare gas during its startup, in reality, that wiggle room is no more than 60 days.
He explained that after those 60 days, Exxon can face fines from the Environmental Protection Agency (EPA) for flaring that does not fall under special circumstances. According to Jagdeo, this is a vast improvement from the Lisa production license that the former APNU/AFC Government issued to Exxon, where routine flaring was not prohibited.
“In the last license, flaring was permitted because there was no prohibition. In this license, flaring is prohibited and there is a fine thereafter. Because you cannot enforce a prohibition unless you have a fine,” Jagdeo explained.
“There will be two components to the fine. One, by the EPA which will do it based on carbon pricing and pollution. And that has to be put in place shortly, a system of fines pursuant to the permit. And the second component is the part we insisted on, on the usage of the gas. We’re entitled to half of that gas.”
Jagdeo noted that as such, if Exxon flares gas and is at fault for doing so, they, therefore, will have to pay a fine to Guyana for the burnt gas. The Vice President noted that APNU/AFC did not see it fit to include any of these provisions for Guyana’s sake in the Liza production license.

Cost estimates
Another provision in the Payara agreement is the requirement for Exxon to submit its development and operating cost estimates for the Payara field within 90 days from the date the license is issued.
In addition, Exxon has to submit a breakdown of the actual operating costs for the first year of the Liza Phase 1 field, which began producing oil last year. This must be done within 180 days of the Payara license being issued. According to Jagdeo, such clear requirements for Exxon to submit its costs were lacking in the Liza production license.
“Under Liza, there was no requirement for Exxon to provide the cost estimates and the details. Now we can see the cost. They would submit it. And then we can assess whether those costs are reasonable. That is a new requirement now.”
Being able to see and assess whether Exxon’s cost oil claims are reasonable before agreeing to it is important, because even before production in the Liza field began, Exxon had claimed to have racked up US$460.2 million in pre-contract costs. This was included in the Production Sharing Agreement (PSA) the former Government signed with Exxon in 2016.
There is an additional sum of approximately US$400 million from 2016 to 2017, which it is believed will also come under the rubric of cost oil. Naturally, the former APNU/AFC Government has received much criticism for agreeing to these costs without an audit being done.

Produced water
The Payara license also speaks to produced water, which is a byproduct of oil and gas production. Produced water, which contains a number of toxic impurities, is brought up out of the oil well during crude production.
In Exxon’s case, it has been dumping that produced water in the Stabroek Block, touching off more criticism from industry stakeholders. While Exxon has said the water is treated and has no environmental impact, EPA has called for Exxon to reinject the water.
According to Jagdeo, there are a number of considerations before deciding to reinject produced water. One such consideration includes the cost for reconfiguring the Floating Production and Storage Offloading (FPSO) vessel.
Indeed, the license speaks to Exxon updating the base design of its project to include space for produced water injection equipment. According to the license, Exxon must submit a study detailing the costs, benefits and feasibility of such a system, as well as details of how they intend to minimise the effects of dumping produced water, by treating it.
“We have produced water. There was first talk of reinjecting it into the well. We realised we did not have the studies. There were huge estimates of what it would take to do this. One ranging up to $400 million, to reconfigure the FPSO,” Jagdeo explained.
“Remember, half of their spending comes out of the revenue and affects our share of profit oil. In crude terms, we pay for half of everything they do offshore, their investments. So, what was critical for us is that water is not released.”
Jagdeo explained that based on international best practice, produced water can be dumped after being treated to an international standard. He explained that while the previous permit did mention produced water, the Payara permit has established a standard, with the EPA monitoring it to ensure compliance.
“So that made a huge difference for us, that EPA can go at any time and test the water to see that the standards established are met and that the water is safe to release in the ocean,” the Vice President said.

Audits and capping stack
Jagdeo further explained that the license includes provisions for safety and compliance audits paid for by Exxon, which will evaluate Exxon’s management of waste. He noted that the inclusion of this in the license is a new feature.
“Exxon has to give the Government, every year, US$400,000. It’s over a five-year period. So, we’d get over US$2 million. It’s in the production license, for us to conduct an independent audit as to the drilling, the compliance.”
According to Jagdeo, the former permit did not include provisions for Exxon to use a capping stack, within a specified period, in case there is a well blowout. A capping stack is a large-scale piece of sub-sea equipment which oil companies keep onshore, ready to deploy to essentially plug the leak of oil.
Due to the logistical challenges deploying the stack, which can weigh over 50 tonnes, Jagdeo noted that it can take several days to be put in place. According to him, they are presently working on mandating Exxon to deploy the stack in worst-case scenarios in as little time as possible.
“The capping stack is a new thing, just in case you have a blowout of a well. They have to cap it within a period of five days, which is close to global standards. But we’re trying to get it down further, but there’s a study to determine how much lower we can get it,” he said.

PSA vs license
Another contention that Jagdeo addressed was Opposition Leader Joseph Harmon’s claims during a press conference on Friday that the PPP/C Government signed a Petroleum Production License (PPL) that was similar to the Production Sharing Agreement (PSA) the APNU/AFC Administration signed in 2016.
Jagdeo quickly debunked this, explaining that a PSA differs from a production licence. He explained that when a PSA is signed, the Government has to issue licenses and operate within the confines of that agreement as long as it’s for that particular block. In this case, the Stabroek PSA covers oil production within the Stabroek Block, including Payara.
“This is the height of trickery. Every schoolchild knows that we were not negotiating the production agreement, the Stabroek Block Agreement that was signed by Raphael Trotman overnight. The agreement deals with all the fiscal terms that will govern every development which has to be licensed separately in the Stabroek Block area.”
According to Jagdeo, who said the Government spoke to several experts on the issue, delaying the Payara permit in the hopes of securing better terms for the PSA was not an option. He noted that with oil companies rapidly losing and rolling back on their investments, it would have been detrimental for Guyana to turn away Exxon’s investment.
“There’s another group that believes that we should have held up Payara and not issue the license and use it as leverage to change the production agreement. And it’s wishful thinking, frankly speaking. It’s wishful thinking that we could have done that now,” Jagdeo explained, making it clear that the Government will ensure more favourable terms and a vastly different model PSA is produced for future oil fields. (G3)