March 28 ,2021
Even as plans continue for bringing gas to shore, ExxonMobil is working on amending the existing development plan for the offshore Liza-1 production area as it relates to commercial issues and expects to hand the document to government soon, the company says.
In that amended development plan the company will move to have further discussions on commercial matters surrounding the associated gas from oil extraction which it said will ultimately determine the sales arrangements and infrastructural responsibilities of both sides.
“A proposed amendment to the existing development plan for the Liza production area, considering the use of associated gas, will be submitted to the Minister of Natural Resources after conceptual design and engineering work are completed, as well as further commercial discussions which will determine the gas sales arrangements and infrastructure responsibilities,” the company said in response to questions from the Sunday Stabroek.
It is left to be seen whether the Government of Guyana will approve Exxon’s proposed changes to the development plan considering that the deal that the US oil major clinched in 2016 is heavily weighted in its favour and it has not been willing to consider changes in areas such as the royalty rate.
The United States Energy Association defines Associated-dissolved natural gas, also referred to as associated gas, as natural gas produced by oil wells. Associated gas contains natural gas plant liquids (NGPLs), such as ethane, propane, normal butane, isobutane, and natural gasoline. By contrast, it explains that non-associated gas is natural gas produced by natural gas wells.
ExxonMobil’s 18 oil discoveries offshore have seen associated gas and the Liza-1 well currently in production is tapping associated gas which is being controversially flared at the moment as ExxonMobil has experienced problems with its compressor equipment on the oil platform.
Government has said that it intends to bring natural gas to shore at Wales, West Bank Demerara from the associated gas tapped by ExxonMobil.
However, it has been warned that before going ahead with a project that Vice President Bharrat Jagdeo estimates would cost about US$500 million to US$800 million to taxpayers that critical studies to determine feasibility and environmental soundness must be done.
And while natural gas will significantly reduce carbon emissions compared to current heavy fuels used here for electricity generation, Chatham House fellow Dr Valérie Marcel says that this country needs to carefully study its future energy mix plan, taking into focus both the economics and environmental impacts.
Former Petroleum Advisor Jan Mangal has also urged that if a decision is made to go ahead with the gas to electricity project, its management should be entrusted to a reputable international agency given the high costs and risks entailed.
Pointing to the 2016 Production Sharing Agreement (PSA) between the government and ExxonMobil and its partners, the former Petroleum Advisor reminded that it caters for the bringing of natural gas to shore for domestic use but many aspects still have to be negotiated as these are not spelt out in the deal.
The current Production Sharing Agreement the Government of Guyana has with ExxonMobil’s subsidiary EEPGL, Hess and CNOOC outlines the responsibilities of both parties as it pertains to both associated and non-associated gases, the domestic supply obligation for both and how crude oil and natural gas would be valued. It is on those subjects that this newspaper sought answers from the oil major.
‘Priority’
Article 12 of the Production Sharing Agreement (PSA) for the Stabroek Block covers Associated and Non-Associated gas and states that the Associated Gas produced from any Oil Field within the Contract Area shall be “with priority used for the purposes related to the operations of production and production enhancement of Oil Fields, such as Gas injection, Gas Lifting and power generation.”
“Based on the principle of full utilisation of the Associated Gas, and with no impediment to normal production of Crude Oil, a plan of utilisation of the Associated Gas shall be included in the Develop-ment Plan of each Oil Field. If there is any excess Associated Gas in the Oil Field after utilisation pursuant to Article 12.1(a) the Contractor shall carry out a feasibility study regarding the utilisation of such excess Associated Gas of such Oil Field,” the PSA states .
“Such feasibility study, if completed before submittal of the Development Plan of an Oil Field, shall be included in the Deve-lopment Plan. In the event that Contractor’s feasibility study on the utilisation of excess Associated Gas is not completed before submittal of the Development Plan, (the) Contractor shall provide the Ministry with regular updates on the progress of such feasibility study then, upon completion, said study shall be submitted to the Ministry and GGMC. Contractor’s feasibility study shall be completed no later than 5 years following the submittal of the Development Plan,” the PSA adds.
It says that if the Contractor believes that excess Associated Gas of an Oil Field has commercial value, the Contractor shall be entitled, but not required, to make further investment to utilise such excess Associated Gas subject to terms at least as attractive as those established for Crude Oil.
It includes, but is not limited to, cost recovery as Recoverable Contract Costs for such further investment.
The PSA makes room for renegotiation of the agreement to deal with how the gas will be developed and utilized.
“If the Contractor believes improved terms are necessary for the development of excess Associated Gas, the Parties shall carry out friendly negotiations in a timely manner to find a new solution to the utilisation of said excess Associated Gas and reach an agreement in writing,” the PSA states.
According to the PSA, if ExxonMobil tells government that the Development Plan would not include a plan to develop and utilize excess Associated Gas, then this country’s government “shall have an election to off take the excess Associated Gas free of charge at the outlet flange of Contractor’s separator facility.”
It makes clear that all elections and decisions by the Minister with regards to its potential utilization of excess Associated Gas under Article 12, would not impact ExxonMobil and partners’ normal development or production of Crude Oil under the subject Development Plan.
However, it is subject to the fact that the Minister’s offtake election shall be postponed until such a time as the feasibility study outlined in Article 12.1 (b) has been completed and the oil contractor confirms by Notice to the Minister that it will not include the development of excess Associated Gas in the Development Plan.
‘Excess’
In addition, if the company’s notice includes a proposal to flare the excess Associated Gas in the Development Plan, then the Minister shall have the option to propose an extension of the response period provided, with Article 6.6 guiding that process, until such time as the Minister can provide the Contractor with a binding alternative proposal for development and use of the excess Associated Gas.
Article 6.6 states that any approvals required by the Minister “shall not unreasonably be withheld”. The contract seems to suggest that a 60-day period would be ample time for the minister to make a decision as if that period expires without any response from the minister, “such approval shall be deemed granted”.
And if the Parties agree that the excess Associated Gas of an Oil Field has no commercial value, then such Gas shall be disposed of by ExxonMobil “in the most economic manner consistent with good international petroleum industry practice”, provided that there is no impediment to normal production of Crude Oil, according to the contract.
All costs and expenses incurred by ExxonMobil in the production, use and/or disposal of the Associated Gas of an Oil Field as stipulated in Article 12.1 and those incurred in carrying out any feasibility study on the utilisation of the excess Associated Gas “shall be charged to the Development Cost of the Oil Field and shall be Recoverable Contract Costs”, the PSA states.
The contract also points out that Guyana will be responsible and holds sole risk and expense for “all costs incurred by the Government for the infrastructure and handling of excess Associated Gas which are not included in an approved Development Plan.” The contract says that those costs incurred by Government “will not affect the amount of Cost Oil and Profit Oil due to Contractor”.
‘Progressing’
And as it relates to the bringing associated gas to shore for natural gas, in July of 2018, then ExxonMobil Country Manager Rod Henson had said that the company believes that it is more beneficial to have the associated gases reinjected for use offshore but that a discussion had commenced on bringing some of it onshore. The amounts required, he had said, would be around 30-35 million cubic feet per day. He had also said that studies undertaken internally by the company showed that bringing natural gas to shore would be a feasible form of energy and that negotiations would continue with government.
Anticipating “significant progress” in the partnership with government in advancing the gas-to-shore project here, the company last week told this newspaper that the associated gas availability from the Liza-1 field has been changed from 35 million standard cubic feet per day (mmscfd) to 50 mmscfd.
The company also announced that it has already submitted an application for environmental authorisation for work on the project and is in the process of beginning the geophysical and geotechnical surveys required.
“ExxonMobil Guyana expects to make significant progress over the next few years in cooperation with the government to advance a gas-to-power initiative. We have confirmed 50 million standard cubic feet of natural gas per day from the Liza fields to support the government’s proposed gas to power project,” Public and Government Affairs Advisor Janelle Persaud said in response to questions from the Sunday Stabroek.
“Discussions with the government are progressing, and we are conducting necessary feasibility studies,” she added.
