Sep 24, 2020 News
Stabroek Block field development costs estimated at US$60B…
The Irfaan Ali administration has inherited an industry of billions in capital costs, where oil is concerned. Recent estimates place the costs to develop ExxonMobil’s current discoveries in the Stabroek Block roughly at US$60B. Rystad Energy recently said that in addition to the Liza Phases One and Two projects (estimated at US$9.5B), ExxonMobil could sanction a further US$50B in projects, including 10 more Floating Production, Storage and Offloading (FPSO) vessels, in the next 10 years. The oil major will endeavour to recover all of it from the sale of Guyana’s crude.
Sixteen discoveries had been made at the time of Rystad’s statement. Two more discoveries have since been announced, which adds potential for even more requests for rapid field developments.
Is Guyana ready for the burden of so many costs in such a short period? Does it have the capacity to scrutinize the billions in capital costs already foisted by ExxonMobil and its Stabroek Block partners? How involved is the government in checking those costs?
Canada–based Engineer, Darshanand Khusial, is asking these and other burning questions on behalf of the Oil and Gas Governance Network (OGGN), a pressure group organised to ensure that Guyana prudently manages its petroleum sector.
“The US$60 billion is 40 times the 2020 budget,” Khusial said in a letter. “The cumulative budget since Guyana gained independence is less than US$60 billion.”
He noted that the Government is dedicating a great amount of alacrity and transparency to the process of preparing and completing the 2020 budget, which stands approximately US$1.5B.
“It has dedicated weeks and employed many to ensure every drop of the US$1.5 billion will be accounted for before it is spent. Every citizen with Internet access can take a look at the budget details. The government is transparent for an activity that affects the life of every local Guyanese.
It is prudent for the government to decide how much money it wants to spend because it has limited funds. Hence, it has to make hard decisions such as how much it should spend on education versus how much is appropriate for implementing energy related projects.”
Khusial noted that, unlike the budget, it is unclear whether similar alacrity is being applied to Guyana’s behemoth oil sector capital costs. When one observes the Government’s handling of ExxonMobil’s US$460M pre-contract costs, it could provide some insight into Guyana’s regard for scrutiny of costs. The company placed this charge on Guyana since 2016 when the controversial Stabroek Block agreement was signed. It has been nine months, as Khusial noted, since the audit of that amount began by the firm, IHS Markit. Nothing has been said to the public about an end date for the audit, so it is unclear when it will be completed.
Despite not having audited such a small cost relative to the billions in development costs for the oilfields discovered by Exxon, the former government went ahead and approved the Liza Phase One and Two projects in 2017 and 2019 respectively, with not a word on how it intended to scrutinize the claims made by Exxon and its partners for those two developments.
Khusial pointed out that the capital costs for Liza One, initially estimated at US$4.4B, faced two revisions down to US$3.5B, with no breakdown of the US$900M in savings, or whether the savings methods are applicable to Liza Two.
The new government, though it promised to learn from the former’s mistakes, is poised to approve the Payara development, which will see billions more in costs Guyana does not have sufficient capacity to audit. The approval would make three approvals, likely altogether amounting to more than US$13B, in just four years.
“Given the debacle with the pre-contract costs,” Khusial said, “one would expect the government to put a policy in place to review costs for the Stabroek block upfront and possibly make the process transparent as it does for the budget. The government can act quickly on major issues as it has shown with the speed it was able to produce the 2020 budget.”
OGGN has many questions for President Irfaan Ali and Vice President Bharrat Jagdeo.
“How involved is the Government of Guyana in the deciding and monitoring of capital costs associated with the oil projects? Does it have a detailed breakdown of the upfront costs for the projects? Does it have a voice in the selection of the contractors to build the billion-dollar FPSOs? Has it hired experts to question the oil companies’ selection of various suppliers? Is it training Guyanese to understand the terms of these billion-dollar supplier contracts? Why, as it did with the budget, shouldn’t it debate in public the items that make up the billions in costs? The people of Guyana will be paying off US$60 billion for years to come. Shouldn’t the government treat the seriousness of this cost the same way it does with the budget?”
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