Initiating contracts early a smart move to keep costs down

ISSUES of transparency around certain oil and gas industry practices continue to be the subject of public discourse. This is good for Guyana as every citizen must become fluent in the language of the industry and hold the government and the industry accountable.

That said, recent criticisms of contracts apparently being signed before final approvals are given are not always what they seem to be.

This is both a common practice in the industry and not quite the full story. Approvals are a years-long process with many stages. Companies do sign some contracts during this process after certain steps are complete.

But these contracts are largely for processes that need to take place years before any actual construction begins, like front-end engineering and design (FEED). Other deals are signed for highly specialised products and services where there are only a handful of providers in the world.

For these, contracts are needed to reserve the service or product years in advance. Otherwise, projects could face years of delays waiting in line even after approvals are granted.

Ultimately businesses are not attempting to “get ahead” of important government approvals like environmental impact assessments (EIAs), but rather to be ready once projects are approved so work can begin without delays.

Contract signing in advance of final approvals is commonplace for any major infrastructure project with multiple stages in the oil industry or elsewhere, and reevaluating or redesigning plans in light of permitting changes is common.

Companies do wait for the final outcome of EIAs and other permits before they make final investment decisions (FID), which then open the door for major equipment orders and contracts for more concrete steps like engineering, procurement, and construction.

EIAs in Guyana are done in accordance with international best practices and allow for a transparent analysis of the environmental consequences in decision-making.

Generally, the critical stages of the process include screenings to decide whether a proposed project should be subject to an EIA, scoping to identify important impacts and issues that need to be addressed for the study, the actual EIA study and preparation of the report, and finally, the presentation of findings to the public.

These stages can take months or years while EIAs are underway and using that time to do preliminary work is vital to keeping costs down. Once projects are approved, this preparation means work can be started immediately and without incident.

According to the international consultancy Wood Mackenzie, deepwater projects like those in the Stabroek Block require some of the highest up-front investments from companies in terms of time and resources, all while costs continue to increase worldwide.

In Guyana’s case, over the last several years, the accelerated development of the offshore resources has depended on the timely awarding of contracts for work that will enable a more conducive and steady business environment.

Guyana’s oil industry is competing globally, and, in this business, nothing is guaranteed. When companies can sign contracts early and invest capital to ensure they are ready when and if approvals are made, projects can commence without issues.

Overall, standard industry practice reflects continued confidence in the oil and gas sector in Guyana and ultimately the people. The acceleration of investment is critical as the world starts to transition away from fossil fuels.

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