Waiting two years before the end of production to set up decommissioning fund is “ill-conceived”- Dr. Kenrick Hunte

Nov 21, 2023 ExxonMobil, News, Oil & Gas

Kaieteur News – Former Ambassador and Professor, Dr. Kenrick Hunte, has labeled the timeline outlined in Guyana’s Petroleum Activities Law for establishing a decommissioning fund “ill-conceived.”

Former Ambassador and Professor, Dr. Kenrick Hunte

He expressed concern over waiting until two years before the expiration of a petroleum licence or the anticipated end of production. Hunte emphasised that this delay could burden Guyana financially.

In the oil and gas industry, decommissioning refers to the process of safely dismantling and disposing of offshore and onshore oil and gas facilities once they reach the end of their productive life. This involves cleaning up the site, removing equipment, plugging wells to prevent leaks, and restoring the environment as closely as possible to its original state.

The recently enacted Petroleum Activities Law mandates companies, including Exxon, to submit a decommissioning plan and budget for ministerial approval. Natural Resources Minister, Vickram Bharrat, recently highlighted that these rules apply to all of Exxon’s projects in the Stabroek Block, regardless of their initiation date.

The law states that the company would have to submit for the minister’s approval, a proposed decommissioning plan and budget no later than two years before the expiration of a petroleum licence or no later than two years before the anticipated end of production. Once that plan is approved, the minister would instruct that a Decommissioning Fund is created. The company would have to make contributions to that fund to ensure that when the time for “clean up” arrives, there would be adequate funds to cover the associated expenses. Importantly, the law states that the minister will dictate the terms and conditions of the fund for deposits and disbursements.

Minister of Natural Resources, Vickram Bharrat

In a letter to this newspaper, Dr. Hunte said, “this approach by the Government on this matter is ill-conceived, to wait until two years before the expiration of a petroleum licence or no later than two years before the anticipated end of production’ can only be identified as another bill to be paid by Guyana from its already meagre share of 14.5 barrels out of every 100 barrels of oil.”

Moreover, the Commonwealth Secretariat in a guide published earlier this year warned its member countries in the oil and gas industry of the uncertainty of decommissioning costs, which can result in the price tag to restore the ocean floor, easily moving from US-millions to US-billions. As a result, the Commonwealth urged its member countries to secure money to restore the ocean’s floor in order to avoid taxpayers having to foot the bill.

The Secretariat highlighted too that in the instance of an oil company failing to clean-up the ocean’s floor, “If such a situation arises, governments will likely have to undertake and pay for decommissioning, because it is in the public interest and/or because it is required to meet the country’s international obligations.”

In this regard, the Secretariat urged Governments to secure financial assurance and implement appropriate assurance mechanisms to avoid taxpayers having to foot the bill for decommissioning costs.

Moreover, this publication had reported that Guyana’s new model Production Sharing Agreements (PSAs) for deepwater and shallow water blocks also expound on the requirements for decommissioning. In those documents, it is noted that a Decommissioning Fund would be held at a reputable international financial institution agreed between the Minister and the oil company. The PSAs state that the minister may access funds from the escrow account in the event that the company fails to properly abandon wells or abandon facilities to the satisfaction of the Minister upon termination of this Agreement.