Govts. should have independent study done on oil projects’ feasibility vs. returns to citizens - Commonwealth Secretariat Advisor

Govts. should have independent study done on oil projects’ feasibility vs. returns to citizens – Commonwealth Secretariat Advisor

Jul 23, 2023 ExxonMobil, News, Oil & Gas

By Kiana Wilburg

– Compare projects against similar ones in the industry
– Have breakdown of all operating costs
– Demand to know how estimates are determined

– Ensure detailed breakdown of borrowing and repayment terms
– Review companies’ marketing strategy for crude oil, gas, condensate, and natural gas liquids

Kaieteur News – When an oil company submits a plan to the government on how it wishes to develop a discovery, that document, otherwise known as a Field Development Plan (FDP), should not be accepted at face value. According to the Economic Advisor attached to the Commonwealth Secretariat’s Ocean and Natural Resources Advisory Division, Naadira Ogeer, governments should take care to do independent analysis that determines the feasibility of such projects versus the gains to citizens.

In a handbook developed to help government officials make the best decisions for its people when reviewing a company’s FDPs, the expert stressed the need for there to be detailed reviews done by state authorities or the experts they hire.

The official said FDPs are documents that ought to be treated with a high degree of importance as they explain how a company will go about developing multi-million dollar projects. Taking this into account, Ogeer said it is critical that the government has a clear appreciation of how revenues will be impacted by changes in key areas of uncertainty e.g. pricing, production fluctuations, and operating costs.

“Ideally, the government should have independent economic models and experts to conduct independent evaluation of the feasibility of a project and the returns to the country,” Ogeer stated in the handbook published by the Commonwealth Secretariat.

Additionally, Ogeer said there are some fundamental pieces of information that oil companies should provide in FDPs for the government to review. She said these include information on the marketing and the sale arrangements for products such as crude oil, gas, condensate, and natural gas liquids.

Ogeer also said oil companies must provide details on the source of funding for development and production including debt-to-equity ratio and all borrowing costs and repayment terms.

Further to this, Ogeer said oil companies should include in their FDPs, annual production and expenditure estimates. She said in this regard that the expenditure estimates should include a breakdown of capital expenditure (capex), operating expenditure (opex), and costs associated with the safe removal of project infrastructure after the oil has been depleted. She also advised governments to request a description of the methodology used to arrive at cost estimates.

The official said governments would be wise to also have FDPs benchmarked against similar projects in the industry.

Once the foregoing steps are followed, Ogeer lauded that governments would be on the right pathway to getting the most value from their resources.

HANDBOOK’S ORIGIN

The Commonwealth Secretariat, through the Oceans and Natural Resources Division, supports member countries in the sustainable development of their natural resources.

The Secretariat also works in collaboration with other organisations to deliver on its mandate. The New Producers Group (NPG or Group) is one such partnership. The NPG was established in 2012 by Chatham House, the Natural Resources Governance Institute, and the Commonwealth Secretariat.

The NPG’s aim is to achieve lasting and inclusive development outcomes in emerging producer countries and to help them prepare for a world beyond oil and gas. It is a network and community of practice bringing together over 30 countries (Guyana included) which are new to the oil and gas sector, and half of which are Commonwealth countries (CWC).

NPG activities are centred around holding Discussion Meetings, including the Annual Meeting, National Seminars, publications which are focused on issues pertinent to emerging producers, and capacity-building initiatives (e.g. training, mentoring, technical teleconferences, workshops and webinars).

At the 2019 NPG Annual Meeting, government officials identified Field Development Plans (FDP) as an area where support was needed. In response, the NPG conducted a seven-day training workshop in October 2020 on “Government Review and Approval of Field Development Plans” which was attended by almost 100 officials from 11 countries. In 2021, the Group has facilitated several countries to develop internal government processes which enable the effective review of FDPs.

To complement the foregoing, the handbook was prepared by the Commonwealth Secretariat to address key challenges faced by regulatory bodies in member countries in reviewing, approving (and monitoring the implementation of) FDPs.