Home Letters The cost for Exxon’s offshore Command Centre is provided for in APNU+AFC...
Dear Editor,
Reference is made to an article in the local media on February 10, 2023, citing Opposition Member of Parliament Ganesh Mahipaul arguing that the “coalition government never agreed that the US$160 million that would be spent on building a new headquarters building at Ogle, East Coast Demerara would be recovered from oil revenues”.
He went on to state that he is guided that there were discussions, but there was no agreement on the coalition Government’s side for the cost to be cost-recoverable.
Contrary to the Opposition MP’s view, however, the agreement for such a facility to be treated as a cost recoverable item is in fact provided for in the Production Sharing Agreement (PSA) with ExxonMobil and its consortium partners that governs the Stabroek block. This PSA was signed by, and agreed to by, the coalition Government in 2016.
Notably, the facility being built is described by ExxonMobil as a state-of-the-art offshore command centre/ the operating base for offshore operations, which will be outfitted with all the technology on one floor, control rooms, monitoring facilities for the offshore operations connected by fibre optic.
According to Exxon’s country manager, “The aim is to ensure that they are operating safely, reliably, and optimising the process at all times.”
Based on the foregoing description of the facility, it is clear that the facility is a critical onshore facility to support the offshore operations, designed also to cater for increased level of production by 2030, from two FPSOs currently to about ten FPSOs, thereby increasing production from 350,000 barrels per day presently to a million and more barrels per day by 2030.
Therefore, for the Opposition MP to claim ignorance now that such an agreement by the coalition Government was entered into, whereby the cost of such a facility is cost-recoverable – is at best ludicrous.
For ease of reference and for the Opposition MP’s benefit, Annex C of the PSA deals specifically with the accounting procedure. The cost of the facility, based on its purpose as described above, is provided for under Annex C (section 2.4 (a), Annex C page 6) which speaks to service costs defined in this sub-clause as follows:
“These are direct and indirect expenditures in support of the Petroleum Operations, including, but not limited to, warehouses, piers, marine vessels, vehicles, motorised rolling equipment, aircraft, fire and security stations, workshops, water and sewage plants, power plants, housing, community, and safety and security services. Service costs in any calendar year shall include the total costs incurred in such year to purchase and/or construct said facilities, as well as the annual costs to maintain and operate the same.”
It is worth noting, too, that Section 3.2 and 3.3 of Annex C prescribes costs recoverable only with approval of the Minister, and costs not recoverable under the agreement respectively.
For ease of reference, 3.2 states that: Costs recoverable only with approval of the minister are:
a) Commissions paid to intermediaries by the Contractor,
b) Donations and contributions to organizations in Guyana
c) Expenditure on research into, and development of, new equipment, materials, and techniques for use in searching for, developing, and producing petroleum, which will be of benefit to Petroleum Operations.
3.3 Costs not recoverable under the agreement are:
a) With the exception of the sum specified in subsection 3.1 (k), costs incurred before the effective date. (3.1 (k) speaks to pre-exploration costs).
b) Petroleum marketing or transportation costs of petroleum beyond the delivery point.
c) Amounts paid under Article 3.2 of the agreement, if any, and other amounts paid with regard to non-fulfillment of contractual obligations, subject to section 3.1 (g).
d) Costs of arbitration, and the sole expert in respect of any dispute under the agreement.
e) Fines and penalties imposed by courts of laws of the Cooperative Republic of Guyana.
f) Payments made in accordance with Article 15.4 of the agreement (royalties and profit oil).
g) Costs incurred as a result of willful misconduct or gross negligence of the contractor, or failure to insure where insurance is required pursuant to Article 20.2 (a) of the Agreement.
Evidently, nowhere in these provisions did it state that the cost for the construction of a critical facility such as an operating centre is not cost recoverable.
The Opposition MP further contended that the technologies in the facility will not be of any value to the Government. In light of this notion, it is crucial to note that the fact that the facility is cost recoverable means that the entire facility, the physical infrastructure and the estate upon which it is built, will be owned by the State. Hence, towards the end of Exxon’s operations in Guyana, the facility will have to be handed over to the State. And unlike other assets, such as equipment that will have depreciated in value by then, the physical infrastructure, or the entire real estate upon which the facility is being built, these types of assets typically do not depreciate, but appreciate in value.
Lastly, when the Vice President said in Opposition that they will not allow Exxon’s Headquarters (HQ) to be cost recoverable once in Government, one has to understand that a HQ facility versus an operating centre (OC) is very different in terms of usage. The definition based on the purposes of these facilities would determine the classification and accounting treatment. the Vice President was unapologetically correct to signal in Opposition that Exxon should not be building a HQ facility in Guyana from Guyana’s cost oil; bearing in mind that having a HQ in Guyana could potentially serve as a regional HQ for Exxon’s operations in the entire region. Of note, no multinational company such as ExxonMobil builds an HQ facility to serve one country. HQs are typically built in a strategic country /location to serve not just one country, but a region or sub-region. As it turned out, this is not the case.
Sincerely,
Joel Bhagwandin
