ExxonMobil could recover $47B in decommissioning costs by 2024-Int’l Report

May 24, 2021 News

Kaieteur News- When the Liza Phase One Project in the Stabroek Block comes to an end in the next 20 years, ExxonMobil’s subsidiary, Esso Exploration and Production Guyana Limited (EEPGL), would be responsible for executing a decommissioning or abandonment plan. Such a plan would entail costs associated with the safe removal of pipelines and other infrastructure that were fixed to the ocean floor to extract the oil. This exercise often calls for millions of US dollars to be invested.
What is interesting to note however, is that ExxonMobil does not have to wait until the next 20 years to start recovering this money. It can, and is most likely is doing this since production kick started in the Stabroek Block in December 2019. Highlighting this “abnormality” recently was the Center for International Environmental Law (CIEL) in its latest publication called, “TOXIC ASSETS: Making Polluters Pay When Wells Run Dry and the Bill Comes Due.” Founded in 1989, CIEL uses the power of law to protect the environment, promote human rights, and ensure a just and sustainable society.
In its report, CIEL pointed to ExxonMobil’s overview of its operations in Guyana which shows that it may drill as many as 92 wells in the Liza One, Two and Payara oil fields alone. In fact, ExxonMobil has drilled exploration wells at more than 16 different potential production sites so far. CIEL said it should be noted that ExxonMobil drilled the wells at an average water depth of 1782 meters (5846 feet) and some are as deep as 2735 meters (8973 feet). The organization also highlighted that the eight wells already in production at Liza One are drilled in water depths of 1500-1900 meters (4921-6234 feet).
To put those depths into context, CIEL noted that the US Bureau of Safety and Environmental Enforcement defines any well drilled in more than 122 meters (400 feet) of water as “deep water,” and the average water depth of wells in the North Sea is 185 meters (607 feet).
With the foregoing in mind, CIEL said it is critical to note that decommissioning such deep offshore wells is expensive. While the cost depends on a number of factors, including ocean conditions, CIEL said it is significantly more expensive than the closure of conventional onshore wells. It said too, that estimates consistently place the costs of deepwater decommissioning in the tens of millions USD per well, once all associated measures are taken into account.
Despite the significant looming expense of closing down these offshore operations, CIEL highlighted that the Production Sharing Agreement for the Stabroek Block does not require the companies to set aside any money for decommissioning in a dedicated fund, or provide any form of financial security while the wells are producing. Instead, the Agreement permits the ExxonMobil-led consortium to deduct the estimated future costs of decommissioning as current operating expenses, according to a schedule based on production rates, without demonstrating that it has reserved those funds for future use.
CIEL also cited an independent report by the Institute for Energy Economics and Financial Analysis (IEEFA) which estimates that ExxonMobil could charge Guyana as much as USD$227 million or $47B in amortized abandonment costs between 2020 and 2024.
With this in mind, the Center for International Environmental Law noted that the recovered costs ultimately diminish the amount of profit oil shared with Guyana, effectively passing the bill of decommissioning on to the government up front.
In its report, CIEL said, “The high costs of closure costs may come due sooner than expected. The economically viable lifetime of the deepwater wells in Guyana is uncertain, given trends in the global oil and gas market, which is now unquestionably in decline. As a result, the time frame over which it is possible to spread those costs may be shorter than anticipated, and the revenues earned from the production may be lower than projected.”
Due to both the structure of the Production Sharing Agreement and market conditions, CIEL said Guyana faces higher costs and lower earnings than anticipated. “Expense is not the only concern associated with the shutdown of deepwater drilling operations. If funds are insufficient to cover the costs of properly decommissioning the wells, there could be significant and lasting consequences for the marine environment and the human and biotic communities that depend on it,” the organization concluded.