The disclosure that ExxonMobil’s Final Investment Decision (FID) for its Liza Phase-2 well has been delayed to enable a careful examination by the government of its Field Development Plan (FDP) is a welcome development.
Considering that the Liza well was only discovered in 2015, ExxonMobil, its affiliates and its contractors have moved with breathtaking speed to begin extraction of oil from the Liza Phase-1 well by 2020. That speed could, of course, be to the great detriment of Guyana which neither today and certainly not in 2015 possessed the requisite skills and knowledge to challenge ExxonMobil and its subsidiary, Esso Exploration and Production Guyana Limited (EEPGL) on any of their projections or assumptions for the wells.
Indeed, Esso presented the Guyana Government and its various agencies with a FDP for Liza Phase-1 with a price tag of US$4.4B. This figure was never tested or challenged by the government. Why was the testing of this figure important? The testing of the figure is crucial as it will be deducted annually from oil revenues prior to profit share between Guyana and Exxon. So if the US$4.4B was inflated or contained questionable items then it reduces the amount of profit oil assigned to Guyana.
When the FDP for Liza Phase-1 was presented to the state, its US$4.4B cost was never dissected or analysed by industry experts to determine if it was on the ball. All that happened was that an Australian consulting firm, WorleyParsons evaluated the technical aspects of the plan. The government approved the FDP on this basis and ExxonMobil announced its FID and a production licence was issued.
That the administration did not seek to mobilise industry experts to test the US$4.4B figure must rank as one of the grossest derelictions of duty by any government of independent Guyana and one that could have cost the country enormously. The veracity of the costs submitted by ExxonMobil for Liza Phase-1 must be carefully examined.
Former Presidential advisor on petroleum, Dr Jan Mangal in a letter to this newspaper in September of this year had argued this point. He had called on the administration to put all approvals for Liza Phase-2 on hold until a complete review of the Liza Phase-1 project cost was done.
“I believe a real and substantive review still needs to be performed of the Liza Phase-1 project cost before approval of the production licence for the next project, i.e. before approval of the Liza Phase-2 project,” Dr Mangal stated.
“Even though the Liza Phase-1 project has been approved, the Government should withhold approval of the Liza Phase-2 project until they fix these issues,” he added.
Chiding the Ministry of Natural Resources (MNR) for its failure to review the US$4.4 billion capital cost for the Liza Phase-1 project, Dr Mangal said that the review should have been performed prior to the approval of the production licence in mid-2017.
He reasoned, “If one assumes the capital cost for the Liza Phase-1 project could be reduced by 20%, which is not unreasonable, then the MNR effectively gave ExxonMobil US$880 Million of Guyana’s money for no reason. That is more than four Skeldons (cost of the Skeldon Sugar Modernisation Programme). The current government should be trying to compete with the former government in other ways, in ways to help Guyana, and not like this. Even if the percentage is 10% and not 20%, why would the MNR do such a thing to the people of Guyana?”
A month after Dr Mangal’s call, the government placed an advertisement for advisory services and technical support to enhance the country’s core capacity to review, approve and authorise oil and gas companies’ Field Development Plan(s) (FDP) and, in the process, protect the interests of Guyana in technical discussions with private sector investors. No mention was made specifically of the Liza Phase-2 FDP.
The advertisement said that the successful firm will be expected to conduct an in-depth review of the FDP, environmental impact assessment (EIA) and supporting documents (including related FDP) submitted by the contractor(s). The ad also stated that this in-depth review must include, at a minimum, an assessment of the strategy and the development model, as well as the criteria for the choices that have been made by the contractor (with a particular focus on recovery, cost and safety optimisation) and potential alternatives.
This is a welcome development and may signal a shift from the laissez-faire attitude of the MNR – which oversaw the secret negotiation of the highly defective Production Sharing Agreement with Esso in 2016 – to greater due diligence under the Department of Energy. It is early in the process yet and it is left to be seen how the Department of Energy comes to grips with its mandate.
Two other points should be made at this stage. The speed with which ExxonMobil develops its major oil finds in the Stabroek Block impinges on the question of the depletion of the country’s hydrocarbon reserves. The government still has to construct a depletion policy for its reserves and to graft this on to ongoing developments offshore and future deals. This should be a priority matter next year.
Second, the disclosure of the delay in the Liza Phase-2 plan was made in the online oil and gas magazine, Upstream. This information did not flow to the citizens of this country from either the government or ExxonMobil. This constriction of information speaks to the secrecy that has enveloped the relationship between the government and ExxonMobil over time. As part of the vital need to familiarise Guyanese with the nuts and bolts of oil and gas matters, the Department of Energy should create various platforms on which members of the public could learn of developments in the negotiations with the various oil operators and educate themselves on this arena.
Last week, Equatorial Guinea ordered energy companies to stop doing business with oil and gas services firm Subsea 7 because the firm failed to comply with laws pitched at creating more local jobs.
Schlumberger (one of Exxon’s contractors working in Guyana), Subsea 7 and FMC faced bans from working in Equatorial Guinea if they did not commit to local content laws. According to Reuters, Schlumberger and Technip FMC have since taken steps to comply with the laws. Operators ordered to stop working with Subsea 7 include Noble Energy, ExxonMobil and Marathon Oil.
The Equatorial Guinea move is an example of the determined steps that routinely have to be taken against oil industry operators. One is hopeful that the planned examination of the Liza Phase-2 FDP represents the beginning of a more robust approach to protecting the interests of Guyana and its people.
