ExxonMobil hands Guyana US$460M bill covering pre-discovery operations

Jan 28, 2018 ExxonMobil, News

Minister of Natural Resources, Raphael Trotman

Guyana is now hurrying to put measures in place to monitor and assess cost recovery claims. However, it has already tied itself to the repayment of US $460,237,918M. This is according to the 2016 Production Sharing Agreement (PSA) that Minister of Natural Resources, Raphael Trotman signed with ExxonMobil.

Annex C of the contract speaks to Cost Recovery. The list of items to be included in this aspect is vast.

One of the many expenses that Guyana will have to stand is what is referred to as “pre-contract cost.” The pre-contract cost is referred to in the contract as the “cost incurred by contractor with petroleum cooperation carried out pursuant to the 1999 Petroleum Agreement.”

The PSA said that this sum shall be “included” in the pre-contract cost. The PSA states that the pre-contract cost “shall include four hundred and sixty million, two hundred and thirty seven hundred thousand and nine hundred and eighteen United States Dollars (USS 460,237,918) in respect of all such costs incurred under the 1999 Petroleum Agreement prior to the year ended 2015,

“and (2) such cost as incurred under the 1999 Petroleum between January 1, 2016 and effective date which shall be provided to the Minister on or before October 3, 2016 and such number agreed on or before April 30, 2017. For purposes of this paragraph, the term pre-contract cost includes contract costs, exploration costs, operating costs, service costs, and general and administrative costs and annual overhead charge as those terms are defined in the 1999 Petroleum agreement.”

According to ExxonMobil’s website, even though the agreement was signed since 1999, the company only initiated oil and gas exploration activities in Guyana in 2008, collecting and evaluating substantial 3-D seismic data that led to the company safely drilling its first exploration well in 2015.

Wikipedia states, “Oil exploration is an expensive, high-risk operation. Offshore and remote area exploration is generally only undertaken by very large corporations or national governments. Typical shallow shelf oil wells (e.g. North Sea) cost US$10 – 30 million, while deep water wells can cost up to US$100 million plus. Hundreds of smaller companies search for onshore hydrocarbon deposits worldwide, with some wells costing as little as US$100,000.”

The PSA signed by Trotman also ensures that Guyana stands the cost of even the interest added to loans taken by ExxonMobil for the purpose of the operation.

The PSA states, “Interest, expenses and related fees incurred on loans raised by the parties comprising the contractor for petroleum operations and other financing costs providing that such expenses are fees and costs consistent with market prices.”

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