ExxonMobil/Guyana oil contract spells disaster for Guyana–Ramon Gaskin

Jan 31, 2018 ExxonMobil, News

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By Kiana Wilburg
Chartered Accountant, Ramon Gaskin, said last evening; there are glaring loopholes in the contract Guyana Government signed with USA oil giant ExxonMobil and its affiliates.
To a modestly sized audience at the National Library, Gaskin concluded that the “terribly flawed” contract spells nothing but disaster for this nation.
Among the many faults, the political commentator was quick to point out that the APNU+AFC Government had a golden opportunity to correct a grave wrong that was committed by the PPP Administration in 1999.
During the PPP’s time, ExxonMobil was given 600 blocks. This is ten times more than what the law stipulates. The nation’s rules and regulations also specify that at every request for a renewal, the company is expected to relinquish half of the oil blocks it started with. But the PPP made an adjustment to the contract, thereby allowing the company to hold on to the 600 oil blocks.
In the new agreement that was signed last year under the Granger administration with ExxonMobil, Natural Resources Minister, Raphael Trotman failed to address or redress the aforementioned problem.
Gaskin is also of the opinion that the government in missing such an opportunity has allowed ExxonMobil and its affiliates to have control of some of the main oil producing blocks offshore Guyana.
The Chartered Accountant was also critical of the fact that the Government is yet to release the Bridging Deed. While the Government has released the petroleum contract it has with ExxonMobil, the Bridging Deed was one of the key documents it failed to make public. The purpose of the Deed is to replace the 1999 Agreement and the 1999 Petroleum Prospecting Licence.
Gaskin reminded that former President Janet Jagan signed the 1999 Agreement in violation of the Petroleum Exploration and Production Act (the Act) to the extent that the company (Esso Exploration and Production Guyana Limited) was granted approximately 600 blocks instead of the 60 blocks permitted by law.
The Chartered Accountant said that the 1999 Agreement and Prospecting Licence appears to have been contained in a single package and included in it is a full description of the blocks and a map of the area allotted to the oil company. However, the 2016 Agreement merely states that a Petroleum Prospecting Licence was granted for an initial period of four years.
With the Bridging Deed not being published, Gaskin said that the Government is operating in contradiction of the nation’s petroleum laws.
Section 16(2) of the Petroleum Exploration and Production Act states: “The Minister, shall, as soon as may be practicable after a licence has been granted, cause notice of that fact to be published in the Gazette stating the name of the licensee and the situation of the land in respect of which the licence has been granted.”
With such behaviour, Gaskin argued that the Government has lost all moral ground to criticize anyone about secrecy. The commentator was also critical of the loud praise the administration gave itself for having increased the royalty from one to two percent.
He noted that there are several African oil and gas agreements which show that there are more favourable royalty terms for the country. Gaskin stressed that the contract and its provisions are essentially generous to the contractor.
The issue of the US$18M signing bonus did not escape Gaskin’s radar. The political commentator noted that the Constitution is pellucid about where money belonging to the state are to go—The Treasury.
Gaskin also questioned the bonus received as he said that, “the number sounds funny to me…”
Furthermore, the Chartered Accountant noted that in the end, the contractor got itself a sweetheart deal. In this regard, he pointed to the issue of cost recovery which was raised by the International Monetary Fund (IMF) in its most recent report on Guyana’s future and the coming of oil.
The IMF said when there is a cost recovery limit and the minimum government share of the profit is greater than zero, a royalty is obviously embedded on the agreement it would have with the oil operator.
The Fund explained that in Guyana’s case, the cost recovery limit as set out in the contract is 75 percent. This means that on the annual earnings from the production oil, the contractor is allowed to recover 75 percent of his expenses.
This means that there is 25 percent of the profit remaining to split evenly between the operator and the host country. The Fund said that the Government is ultimately guaranteed to receive a minimum of 12.5 percent of the total production. When the two percent royalty rate is added, Government gets 14.5 percent of the production.
Gaskin was quick to note that there are countries with more favourable provisions than this. Given the aforementioned and other factors, the Chartered Accountant said that the contract is reflective of a terrible deal and one that is illegal given the instances in which it is in conflict with the laws of Guyana.

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