Exxon 50% is unencumbered

Jan 31, 2018 Peeping Tom

Those who are calling for a more balanced view of the Production Sharing Agreement between Exxon Mobil and Guyana are really clutching at straws.

The argument about the high risks involved and the necessity of the company making a return on its investment must be examined in the context that both the high risks can be quantified and the return on the investment are guaranteed by cost recovery.

Exxon is making the initial investment. But every cent of that investment, over which Guyana has no control, will be recovered. So what are the risks that Exxon took? Those risks relate to the fact that it may not have been able to find oil and therefore its exploration investment would not have yielded a return. But even here Exxon has billed Guyana for work done during the exploratory phase.

But that is catered for by oil companies. And this is why the initial royalty negotiated was low. There was then no discovery of oil. But having discovered oil, it is unconscionable for Exxon to have then agreed only to a 2% royalty. And then to add insult to injury, to have cost recovery.

Cost recovery henceforth means Exxon is carrying limited risks. It knows there is oil and recoverable oil. Exxon will recover whatever it spends. So whatever investment is taking place will be borne by Guyana from its cost oil.

Exxon will cap cost recovery at 75% of production which means that, at worst, Guyana will obtain a12.5% share of the production. It could have gotten this amount from renegotiated royalties alone. So what is there to shout about?

Exxon has done a number on the Guyanese people. By the time Exxon is finished with their cost recovery, very little is going to left for the Guyanese people.

When it comes to cost recovery, the greatest insult is the provision which was reported in yesterday’s edition of this newspaper. The Kaieteur News reported yesterday that should Exxon Mobil be taken before the courts in Guyana or even before a regional or international court for any reason that has direct relations to the company’s operations in Guyana, the cost incurred for all legal fees or judgments handed down will be paid by Guyana.

The agreement specifies that, “All costs and expenses of litigation and legal or related series necessary or expedient for the procuring, perfecting, retention and protection of the contract area and in defending or prosecuting lawsuits involving the contract area or any third party claim arising out of the activities under the agreement or sums paid in respect to legal services necessary or expedient for the protection of the interest of the parties are recoverable.”

If, for example, Exxon fails to pay one of its suppliers and that supplier takes Exxon to court and wins, Guyana has to pay the legal fees plus the judgment. Is this not a total “eye- pass” against Guyana? And yet there are those who are saying that a broader perspective must be taken of the PSA?

What broader perspective can one have than revulsion that Guyana has to pay legal fees relating to any challenge against Exxon?

But, according to Kaieteur News, things get worse. If there is an oil spill and ExxonMobil is sued, Guyana will pay the price. Guyana has to pray that there is no oil spill because the litigation associated with any spill will bankrupt Guyana.

The oil industry will have to close down. As Kaieteur News reported, ExxonMobil did not commit to bearing the legal or financial responsibility in the event of a disaster.

It is time for Exxon to sit down and make right this lop-sided agreement that it has foisted on Guyana. Guyana is a newcomer to oil. Guyana could not have been expected to know better. Exxon took advantage of Guyana. Exxon has placed almost all the burdens of this agreement on Guyana while their 50% remains unencumbered. And yet some people want us to see the broader view.

That is too scary a prospect because it could become another Omai-type deal. The gold gone and Guyanese are still “piss poor.”

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Exxon 50% is unencumbered

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