Exxon’s in­vest­ment de­ci­sion for Liza Phase-2 de­layed

-as gov’t plans scru­tiny of field de­vel­op­ment plan

Stabroek News Sunday - - FRONT PAGE -

ExxonMo­bil has had to de­lay a Fi­nal In­vest­ment De­ci­sion (FID) on its Liza Phase-2 project as a re­sult of the Guyana govern­ment’s move to care­fully as­sess Field De­vel­op­ment Plans (FDPs).

Word of the de­lay on the FID for Liza Phase 2 came via on­line oil and gas mag­a­zine Up­stream. When con­tacted for a com­ment yes­ter­day on the de­vel­op­ment, Head of the Depart­ment of En­ergy Dr Mark By­noe told Sun­day Stabroek, “...we want to make de­ci­sions from a po­si­tion of knowl­edge. As you would have known, we ad­ver­tised for in­ter­na­tional ex­per­tise to help us re­view the FDP that was sub­mit­ted for Liza 2. So that would have to go through a process re­view be­fore we ac­tu­ally pro­vide any ap­provals. Since the ex­per­tise is not ev­i­dent here, we had to ad­ver­tise for that. The fact that it is go­ing through a process pos­si­bly has post­poned the de­ci­sion (FID), from the op­er­a­tor’s stand­point.”

The planned eval­u­a­tion of the Liza Phase-2 FDP would mark a sharp de­par­ture in the govern­ment’s han­dling of ExxonMo­bil’s plans. The Guyana Govern­ment ap­proved Exxon’s FDP for the Liza-1 well re­ly­ing only on a tech­ni­cal eval­u­a­tion that had been done by in­ter­na­tional con­sult­ing firm Wor­ley­Par­sons with­out an ex­am­i­na­tion of the pro­jected costs for the de­vel­op­ment.

De­spite the FID de­lay, ExxonMo­bil says that the project re­mains on track. “FID will come after Phase 2 de­vel­op­ment plan ap­proval. We’re work­ing closely with the new Depart­ment of En­ergy as they per­form a thor­ough re­view of the de­vel­op­ment plan. The project re­mains on track for first oil in 2022,” ExxonMo­bil’s Dee­dra Moe told Sun­day Stabroek when con­tacted on Fri­day.

Up­stream said that the FID has been post­poned to the first quar­ter of next year as op­posed to be­ing an­nounced be­fore the end of this year.

In Septem­ber this year, for­mer Govern­ment Ad­vi­sor on petroleum Dr Jan Man­gal called on the ad­min­is­tra­tion to put all ap­provals for Liza Phase-2 on hold un­til a com­plete re­view of the Liza Phase1 project cost is 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,” Man­gal stated in a let­ter to this news­pa­per.

“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.

ExxonMo­bil has pro­jected that the Liza-1 oil well de­vel­op­ment alone will cost ap­prox­i­mately US$4.4 bil­lion, which will con­sti­tute cost oil as per the pro­duc­tion shar­ing agree­ment signed in 1999 and rene­go­ti­ated in 2016.

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?”

In Oc­to­ber of this year, the APNU+AFC govern­ment an­nounced it was seek­ing 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. This was the first sign of a shift in ap­proach by the govern­ment.

In the ad, the Min­istry of Nat­u­ral Re­sources in­vited el­i­gi­ble firms to sub­mit ex­pres­sions of in­ter­est to pro­vide the ser­vices. 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 said 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.

The du­ra­tion of the as­sign­ment is ex­pected to be four months with an op­tion to re­new on ex­pi­ra­tion, com­menc­ing 5th De­cem­ber 2018. Work is to be con­ducted in the of­fices of the con­trac­tor in Guyana and in Hous­ton. The pe­riod of the as­sign­ment would sig­nal that FDP ap­proval for Liza Phase-2 was not pos­si­ble this year.

Un­der scru­tiny

Up­stream’s re­port said, “ExxonMo­bil has de­layed a fi­nal in­vest­ment de­ci­sion on the sec­ond-phase de­vel­op­ment of the gi­ant Liza play off Guyana as Pres­i­dent David Granger’s govern­ment tries to rec­on­cile an ag­gres­sive de­vel­op­ment sched­ule with do­mes­tic com­plaints about terms granted to the US su­per­ma­jor. ExxonMo­bil said in July that it was aim­ing to sanc­tion the Liza-2 de­vel­op­ment by the end of this year, chas­ing first oil by mid2022, but the fi­nal in­vest­ment de­ci­sion tar­get has slipped back to the first quar­ter of 2019, ac­cord­ing to in­dus­try sources.”

Up­stream fur­ther said that with Guyana’s govern­ment fac­ing a con­sid­er­able ad­min­is­tra­tive work­load from the fast-mov­ing Liza projects, the de­lay ac­tu­ally re­lates back to the first Liza floater (Liza Phase-1), al­ready un­der con­struc­tion fol­low­ing a con­trac­tual award to SBM Off­shore. “This first phase of de­vel­op­ment, fea­tur­ing a float­ing pro­duc­tion, storage and of­fload­ing unit with a pro­duc­tion ca­pac­ity of 120,000 bar­rels per day of oil, has al­ready re­ceived govern­ment ap­provals and project sanc­tion, and is ex­pected to start pro­duc­ing in 2020,” it noted.

It added that while govern­ment has ap­proved Liza Phase-1 plans and that project will see first oil pumped by 2020, the cost re­cov­ery as­pect were never fully re­viewed and “this el­e­ment con­tin­ues to come un­der scru­tiny.”

It pointed to the re­cent ten­der for con­sul­tancy ser­vices put out by the Depart­ment of En­ergy to ob­tain an in­de­pen­dent anal­y­sis of this as­pect of the cost oil as­pects of the pro­duc­tion-shar­ing agree­ment that gov­erns the Liza de­vel­op­ment and said this has slowed the ap­provals process on Liza Phase-2.

The Up­stream ar­ti­cle noted the slew of crit­i­cisms the APNU+AFC govern­ment has re­ceived since the rene­go­ti­a­tion of the PSA in 2016.

“These crit­i­cisms have ar­guably grown since the ad­min­is­tra­tion pub­lished the con­tent of the pro­duc­tion shar­ing agree­ment in De­cem­ber 2017, fol­low­ing a trans­parency cam­paign. The terms of­fered a bet­ter re­turn to the oil com­pany than most in­ter­na­tional bench­marks, ac­cord­ing to a re­port by the In­ter­na­tional Mon­e­tary Fund (IMF). OpenOil, a Ber­lin-based pro-trans­parency en­tity which of­fers open data frame­works and train­ing for man­ag­ing nat­u­ral re­sources at a supra­na­tional level, ap­plied its own fi­nan­cial model and stated: “Over the life of the project the govern­ment should ex­pect to see from 52% to 54% of prof­its, com­pared to well over 60% in a clus­ter of com­pa­ra­ble projects signed in other fron­tier coun­tries”,” the ar­ti­cle states.

After the de­duc­tion of a 2% roy­alty, the PSA al­lows ExxonMo­bil to uti­lize up to 75% of pro­duc­tion as cost oil and the re­main­der is split 50:50 with Guyana. The PSA also com­mits Guyana to waiv­ing cor­po­rate tax, value added tax and cus­toms du­ties “in re­spect of in­come de­rived from petroleum op­er­a­tions or in re­spect of any prop­erty held, trans­ac­tions un­der­taken or ac­tiv­i­ties per­formed for any pur­pose au­tho­rized or con­tem­plated” and also waiv­ing most im­port du­ties. Fuel costs are also taxd­e­ductible un­der the con­tract. The OpenOil re­port sug­gested there is also “a sig­nif­i­cant pos­si­bil­ity, as re­serves growth gath­ers pace, that ExxonMo­bil and its part­ners could achieve “rates of re­turn of over 25%. Op­po­si­tion politi­cians have also crit­i­cized a PSA sta­bil­ity clause that ap­par­ently rules out any new taxes, roy­al­ties or other ad­di­tional fiscal obli­ga­tions,” it added.

It pointed to some fore­casts, cited in a re­port on Guyana by the New York-based Nat­u­ral Re­source Gov­er­nance In­sti­tute, which sug­gests that fiscal rev­enues from the petroleum sec­tor could range be­tween US$7 bil­lion and US$27 bil­lion over the next 30 years.

Dr Mark By­noe

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