Having already found ten billion barrels of oil equivalent in the Stabroek Block, ExxonMobil is seeking an extra year before having to relinquish parts of the concession as it says that the COVID pandemic has severely hampered its work.
ExxonMobil’s subsidiary, Esso Exploration and Production Guyana Limited (EEPGL) and the government are currently in discussions on the relinquishment obligation following a request by the company for a one-year extension.
The relinquishing of blocks is set to take effect in 2023, but ExxonMobil explained that due to COVID-19 pandemic related setbacks last year, the company was now requesting a one year extension.
“In July 2020, EEPGL notified the Government of the Force Majeure conditions it encountered with respect to the COVID-19 global pandemic under the provisions of the Petroleum Agreement for the Stabroek Block and Petroleum (Exploration and Production) Act.
“COVID-19 delayed certain of our drilling plans under the prospecting license for the Stabroek Block. An extension reflects the operational, supply chain and other COVID-19 related disruptions affecting the energy sector and the wider global economy.
“Numerous countries such as Brazil, Mexico, Colombia, South Africa and Canada, among others, have provided extensions to companies in order to aid the exploration industry in weathering these disruptions.
“An appropriate extension would help restore us to where we would have been absent the COVID-19 global pandemic”, the company’s Public and Government Affairs Spokesperson, Janelle Persaud, said in response to questions asked by Stabroek News.
Stabroek News reached out to Minister of Natural Resources, Vickram Bharrat, who promised to discuss the issue, however, subsequent calls to his number have gone unanswered.
The government had earlier this month announced that it would be “aggressively” pursuing relinquished blocks as it prepares to auction available offshore areas later next year. That announcement did not, however, mention ExxonMobil’s request. It was Vice-President, Bharrat Jagdeo, who told a press conference the following, “We are hoping that [at] latest, next year third quarter, that we will be able to auction the new blocks. That requires us now to aggressively enforce the relinquishing provisions in all of the contracts so that, added to the existing pool of areas available… which can then form part of the auction that will take place.”
Minister of Natural Resources, Bharrat, was asked to provide clarity on Jagdeo’s announcement and responded saying that he was checking with his technical team to confirm if the said relinquishments referred to, would include blocks where there was no exploration. To date, those queries have not been clarified by the Minister. Further, it is unclear how much of the offshore area is due back to Guyana through relinquishments. An agreement was entered into with ExxonMobil to continue works in the Stabroek Block in the scheduled relinquished areas; the then APNU+AFC government had also announced in 2019 that 20% of the Canje Block area was relinquished by the company.
Lockdown
Stabroek News learnt of the application for an extension on ExxonMobil’s relinquishment obligations in the lucrative Stabroek Block area following Hess’ presentation at the Bank of America (BofA) Securities 2021 Global Energy Conference last Wednesday, “The operator has applied for an extension due to COVID-19 on that 2026. We will wait and see [if] it actually get that, but there could be an extension to the exploration licence due to Covid. But by then, you need to lock down all of your production areas at that point and then you relinquish whatever acreage you don’t want out of that, ” Chief Operating Officer (COO) of Hess, Greg Hill said.
Moderator and Managing Director of BofA Securities, Doug Leggate, questioned the timeline available for developmental plans pointing out that only four and a half years is left on the 10-year Production Licence, and further querying if the company would be able to undertake all its developmental plans for the block.
“I can’t believe we are already (five) and a half years down the road…that means you only have four and half years left …Is that enough for you to do what you have to do?” Leggate questioned. Hill, in response, was confident that the time was sufficient, saying that the operator, ExxonMobil, has applied for an extension to cover the pandemic-hit years.
“Regarding the four and half years left on the block, yeah, I think that will give us enough time to figure out what we have on the block and underpin the developments. Basically that would depend somewhat on success. We feel pretty confident that with the very active programme, like John suggested; that has 12 exploration wells planned for next year and 12 we had this year, and if we continue this pace, I think we can prosecute most of what we want to on the block,” he said.
Asked about how relinquishment provisions work, Hill explained, “Basically, you have to pretty much to lock down kinda every production licence between now and the expiration period ending. So you basically lock down all the acreage that you expect to develop with a production licence between now and 2026.”
Under the terms of the Stabroek Block petroleum agreement, a 20% relinquishment is required at the end of the first renewal period, initially scheduled for 2020 to 2023. Article 5 that addresses relinquishment of areas states that “prior to the end of the first renewal period of the Petroleum Prospecting Licence, an application is made by the Contractor for renewal of the Licence under section 24 (I) of the Act. The Contractor shall then relinquish, at the end of this first renewal period, an area equal to at least twenty percent (20%) of the Contract Area, less the exclusions provided for in Article 5.2.
The areas to be relinquished pursuant to Article 5.1 shall: (a) Comprise Blocks, as defined in the Act; (b) exclude any Discovery Area together with a reasonable area of protective acreage surrounding the Discovery Area, and any area under an Appraisal Programme pursuant to Article 8, should that Appraisal Programme area be larger than the Discovery Area; (c) Exclude any Discovery Area or larger area of an Appraisal Programme of Natural Gas in a market development phase pursuant to Article 12.2(a); (d) Exclude any Production Area; (e) exclude any block or blocks in the Contract Area for which the Minister has given notice, such notice acknowledged and agreed in writing by the Contractor, that they shall not be subject to relinquishment; (f) be selected by Contractor so that: the area relinquished shall comprise not more than three (3) discrete areas, having regard to any representations made by the Minister with respect to location, shape and size;(ii) the Blocks to be retained for and during the first and second renewal period pursuant to Article 4.1 (b) and (c) shall constitute not more than two (2) discrete areas unless otherwise agreed to by the Minister.
Section 5:3 states that in the event that an area or areas “cannot be identified for relinquishment in accordance with this Article without including in such area or areas in whole or in part a subsisting Discovery Area, area under an Appraisal Programme, or Production Area, or the Minister is of the opinion that the area(s) to be relinquished will not enable licensing separately or jointly with contiguous unlicensed areas, then the Minister and Contractor shall consult together with a view to agreeing on the area(s) to be relinquished in the light of the circumstances then prevailing. If after sixty (60) days from receiving notice of the Contractor’s proposed relinquishments the Parties cannot agree on a proposed relinquishment, the Parties may submit the matter to a sole expert pursuant to Article 26.” For the purpose of the Article, a Discovery Area “shall not include any Discovery Block which relates to a Discovery in respect of which the Contractor has notified the Minister that the Discovery is not of potential commercial interest pursuant to section 31 (1) of the Act, unless such Discovery Block forms a part (and only to the extent) of another subsisting Discovery Area.”
ExxonMobil said it triggered the Force Majeure clause of the PSA to restructure its operations due to the implications of the unforeseen pandemic and subsequent effects it had on its operations.
When asked to identify the effects of the pandemic on operations here, ExxonMobil said that, “Since the beginning of the pandemic in early 2020, we have experienced an aggregate loss in excess of 40 months of drilling rig time across our rig fleet, with the exploration programme in Stabroek alone set back by more than 12 months.”
It continued, “More specifically, initial travel restrictions affected our ability to bring in rotational workers from abroad in a timely manner which forced us to place two drill ships in holding; the Stena Carron and Noble Tom Madden. We were also unable to deploy additional drillships in Guyanese waters to execute planned drilling campaigns. ExxonMobil Guyana has been continuously working to limit the disruption of COVID-19 to our operations. However, there were unavoidable delays to exploration and appraisal drilling schedules which have been transparently disclosed to the Government.” Referencing the effects, ExxonMobil added that they “are proud of the resilience of our team in mitigating, as much as possible, the effects of the pandemic on our operations”.
