Latest update April 25th, 2024 12:59 AM
Jan 01, 2023 News
…gives no commitment to plug loophole in new PSA
Kaieteur News – Oil-producing states across the World are all tasked with ensuring sustainable development of the resource. In keeping with its responsibility towards restoring the environment, a decommissioning fund is established to ‘safe keep’ funds that will eventually be used to remove oil production equipment from the sea floor at the end of a project’s life.
The 2016 Production Sharing Agreement (PSA) that Guyana signed with oil giant ExxonMobil allows for the company to deduct these costs years before it is needed; not only that but the developer is also allowed to hold these funds on behalf of the country.
This has been flagged in the past as a major loophole in the Agreement, especially since lessons from other oil producing nations have shown instances of the companies trying to evade this responsibility, though deducting these costs up front.
In Guyana, Vice President Bharrat Jagdeo, who has been heading the local petroleum sector, has agreed that this particular clause is a concern. However, when it comes to plugging this loophole, he is unable give a direct commitment.
At his most recent press conference, Kaieteur News raised the issue with the Vice President, who said he does not believe that it is advantageous for ExxonMobil to hold Guyana’s decommissioning funds.
He explained, “That is what the contract (says) it’s out now so by mid-February, we will have a completely new PSA which will address those things which we believe that are not advantageous to us because they hold the decommissioning funds.”
In trying to brush the matter aside and move on to another question, Jagdeo urged, “I wouldn’t want to comment on things that we have already commented on publicly about deficiencies in the PSA. We have done that a million times. I am trying to fix it now like how we fixed the fiscal part. We are fixing a number of things in the PSA and that’s what I said earlier. It’s right now, a total re-write of the PSA that (is what) we are doing.”
When he was pressed to say if this means Guyana will be holding the funds going forward, he made it clear that a commitment in this regard cannot be given yet.
Jagdeo said, “So we’re… I don’t wanna, you know how cautious I am. When Glenn [Kaieteur News Publisher] was pointing out about the fiscal terms and was trying to get me to commit on his programme, I said we are in the process. We examined it and we came up after we finished the simulations, we came up with the formula that we did- 10 percent royalty, 10 percent taxes, etcetera. We are in that process now. I don’t want to be premature again about its components but that is a concern. It is a concern that will be addressed.”
The Vice President made it clear that the provisions governing the Stabroek Block will not change. This means that all future projects to be approved in the rich offshore oil reserve will be subjected to the same lopsided deal.
Stakeholders have argued in the past that the government can use future projects to bring the oil company back to the table to secure better terms, however the People’s Progressive Party (PPP) administration is adamant that the Exxon PSA will not be amended to maintain ‘sanctity of contracts’.
It must be noted that this argument has been discounted by at least two international Lawyers, who have explained that this term does not mean changes are prohibited. At the same time, the Exxon deal was amended before by the Coalition government, to make it definitive that the two percent royalty being paid by the contractor would not be recovered as an expense.
US$355.7M deducted
For 2020 and 2021, ExxonMobil and its partners, Hess Corporation and CNOOC Group, have recovered a whopping US$355.7M for decommissioning costs which would be incurred in another 18 years for the Liza Phase One Project.
Based on its 2021 financial statements, Exxon’s subsidiary, Esso Exploration and Production Guyana Limited (EEPGL) recovered $15.2B in 2020 and $17B in 2021 for decommissioning costs associated with the Liza One Project. It therefore means that its total take for the two years was US$160M.
Its partners also recovered monies too. Though their financial results have not been made public as yet, Kaieteur News was able to calculate their take based on the percentage of working interest they hold in the Stabroek Block. With Hess’ 30 percent stake, it recovered approximately US$106.7M while CNOOC’s 25 percent working interest would be equivalent to US$89M being recovered for decommissioning.
During a recent engagement with media operatives, ExxonMobil Guyana acknowledged that decommissioning funds are not needed until 20 to 30 years down the line. Be that as it may, the company noted that the provisions of the 2016 Stabroek Block deal allow for early recovery. The oil giant assured nonetheless that when Guyana needs that money for clean up, it said the country would not be left to handle same.
Exxon, Shell walks away from California wells
In November, it was reported that ExxonMobil Corporation and British oil giant Shell are selling their California wells and officials are worried that the reason behind their departures is the looming liability for environmental cleanup – which can be left on taxpayers to foot the bill.
ProPublica, a non-profit newsroom that investigates abuses of power particularly in the oil and gas industry – reported that despite the price of oil produced in California this year reached its highest level in a decade, – Exxon and Shell who have done business in the State for more than a century, are selling assets and beginning to pull out of California.
ProPublica also reported that the oil giants agreed to sell more than 23,000 wells in California, which they owned through a joint venture called Aera Energy, to German asset management group, IKAV, for an estimated US$4 billion.
Other industry experts, lawmakers and environmentalists are concerned about the deals, noting that the sales shift environmental liability from corporate powerhouses to less-capitalized firms, increasing the risk that aging wells will be left orphaned, unplugged and leaking oil, brine and climate-warming methane. They see a threat that the State’s oil industry could repeat a pattern seen in other extractive industries like coal mining and lead to taxpayers bearing cleanup costs.
California Assembly Member, Steve Bennett, a Democrat who has long worked on oil policy, has seen oil companies in his Ventura district walk away from environmental liability. “It gets passed on to a smaller company and to a smaller company until someone declares bankruptcy and the public is stuck with the cleanup bill,” he said.
According to ProPublica, if it’s not profitable to return wells to production, they need to be plugged. But if a company does not plug its wells before walking away, wells are orphaned and the cleanup costs ultimately fall to taxpayers and current operators through fees.
Jagdeo giving Exxon 102 cent to collect 2 cent.
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