Guyana: Historic draw of first oil has arrived

Guyana: Historic draw of first oil has arrived

The “Liza Destiny,” the first of a number of Floating, Production, Storage and Offloading (FPSO) vessels that will be deployed in Guyana’s waters by ExxonMobil. (Esso Exploration and Production Guyana Limited photo)

(Stabroek News)

The historic moment was announced last night by US oil major ExxonMobil and came less than five years after one of the company’s subsidiaries made a major oil find in the Liza-1 well offshore in the sprawling Stabroek Block.

Minutes before Exxon’s announcement, President David Granger delivered an address to the Nation heralding the start of oil production and assuring that petroleum revenues would be prudently managed.   

ExxonMobil in its statement last night said that oil production had started from the Liza field offshore Guyana ahead of schedule and less than five years after the first find of hydrocarbons. It said that this was well ahead of the industry average for deepwater developments.

In the statement, the company said that production from the first phase of the Liza field, located in the Stabroek Block, is expected to reach full capacity of 120,000 barrels of oil per day in coming months, and the first cargo is set to be sold within several weeks.

“This historic milestone to start oil production safely and on schedule demonstrates ExxonMobil’s commitment to quality and leadership in project execution,” said Darren Woods, chairman and chief executive officer of ExxonMobil Corporation. “We are proud of our work with the Guyanese people and government to realize our shared long-term vision of responsible resource development that maximizes benefits for all.”

The Liza Phase 1 development project features the Liza Destiny floating, production, storage and offloading (FPSO) vessel moored 190 kilometers offshore Guyana, and four subsea drill centres supporting 17 wells.

The statement said that around 1,700 of ExxonMobil’s employees and other workers supporting its activities in Guyana are Guyanese – more than 50 percent of the total workforce. This number will continue to rise as additional operations develop, the statement said. ExxonMobil and its direct contractors have spent approximately US$180 million with more than 630 local suppliers since the first discovery in 2015.

“Through our continued workforce development and community investments, we are making a positive impact in Guyana,” said Rod Henson, president of ExxonMobil’s Guyana affiliate. “We are committed to the use of technology and continued innovation to achieve the highest standards for safety and environmental performance.”

A second FPSO, Liza Unity, with the capacity to produce up to 220,000 barrels of oil per day is under construction to support the Liza Phase 2 development, and front-end engineering design is underway for a potential third FPSO, the Prosperity, to work the Payara field upon government and regulatory approvals.

ExxonMobil says  that by 2025 at least five FPSOs will be producing more than 750,000 barrels per day from the Stabroek Block. The statement said that the timely development of these additional projects will ensure that the local workforce and the utilization of local suppliers will continue to grow.

The current estimated discovered recoverable resource from  the Stabroek Block is more than 6 billion oil equivalent barrels. Esso Exploration and Production Guyana Limited is the operator and holds 45 percent interest. Hess Guyana Exploration Ltd. holds 30 percent interest and CNOOC Nexen Petroleum Guyana Limited holds 25 percent interest.

Proclamation

In his address last night, Granger, who is performing the functions of caretaker President in the run-up to General Elections on March 2nd, 2020 said he would recognize the day via a proclamation.

“I shall issue a proclamation declaring 20th December as ‘National Petroleum Day.’ The proclamation will remind us of our duty to protect the country’s patrimony and to ensure the sustainable management of finite hydrocarbon resources”, he said.

The oil production day came 24 hours before the 1st anniversary of the APNU+AFC government’s defeat in a vote of no-confidence in the National Assembly.

Granger, whose government has been strongly criticized over its management of the oil sector, said that petroleum production will be a transformative process in the country’s economic development.

He asserted that the government has taken steps to safeguard the national interest. Critics have said that Granger’s government’s negotiation of the 2016 Production Sharing Agreement with ExxonMobil’s subsidiary EEPGL was a huge financial disaster as Guyana literally ceded billions of US$ to Exxon and its partners. Under the deal, Guyana gets a 2% royalty after which cost oil could be as much as 75% of the 98% remaining. The other 25% is to be split between Guyana and Exxon and its partners.

Granger noted last night that the Department of Energy (DE) was established to manage the country’s hydrocarbon resources and it is seeking the best advice, including international best practices as it builds the institutional, legislative and regulatory capability to manage this sector effectively.

The DE has been flayed by some critics for poor management of the oil and gas sector. Only recently, the DE was pilloried for the secretive way in which it proceeded to organize the sale of the first tranche of oil that will come to Guyana from the Liza field.

Granger also noted that the Natural Resource Fund (NRF) Act 2019 was passed by the National Assembly. He said that the ‘Act’ provides for ensuring that the country’s resource wealth “…benefits both current and future generations…” and incorporates oversight, accounting, reporting and auditing mechanisms to promote prudent, transparent and accountable management of oil revenues.

This Act has been criticized as inadequate and entrusting too many powers to the President and the ministry of finance.  With a caretaker government in place and Parliament not functioning it is unclear when the mechanisms contained in the NRF Act will be activated.

“Guyanese, I assure that your Government will manage petroleum revenues prudently to ensure fiscal discipline, financial sector stability, sustainable levels of public debt and low inflation.

“Withdrawals from the ‘Fund’ will follow a balanced approach, prioritising investment in public education, public health, public infrastructure, public security, social protection and other social services and will support private sector development”, Granger said.

He added that petroleum production has “brought the prospects of a higher quality of life closer to our households and neighbourhoods. It is a momentous event which we should commemorate for perpetuity”.

First oil has arrived without key pieces of legislation in place. The defeat of the government on December 21st last year meant that key legislation such as for the Petroleum Commission were not proceeded with. In addition legislation such as for local content policy is yet to be arrived at. As a result, critics say that the government has not been able to ensure the full flow of benefits to Guyanese workers and companies.

Critics have also said that Guyana remains incapable of monitoring Exxon’s operations and that areas such as auditing costs and protecting from environmental pollution present grave challenges to the country.

The critics also say that Guyana is yet to reconcile its ambitions to be a green developing state with the reality that it will be producing large amounts of carbon fuels.

The May 2015 Liza-1 well find came following decades of fruitless oil searches both on and off land for hydrocarbons.

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