Govt. confuses Concession Agreement with a PSA

Apr 04, 2018 ExxonMobil, News

…Makes puzzling comparisons between oil deals in Saudi Arabia and Guyana

While Guyanese lawyers, businessmen, environmentalists and opposition politicians believe that the nation is being shafted in its agreement with ExxonMobil, the Government remains convinced otherwise. To this extent, the Government has seemingly launched a Public Relations campaign in an effort to get the citizenry to “know the facts” and appreciate the ExxonMobil contract.

Government’s baffling attempt at Public Relations

On Monday, Government’s Department of Information (DPI) released an advertisement noting the provisions of the first contract signed in Saudi Arabia.
However, in the ad, government examined a “Concession Agreement” signed by Saudi Arabia when the ExxonMobil contract with Guyana is actually a Production Sharing Agreement. The comparison is therefore inappropriate and at worse, misleading.
Governments choose among many contracts to delegate the exploration and the extraction of oil. However, the basic contract types are concession agreements, production-sharing agreements, service contracts and joint ventures.
The contractual form changes between and within countries, but the most common contracts are concession contracts and production sharing agreements.
Further, the highlighted contract by DPI was signed way back in 1933, some 84 years ago. The money quoted in the contract would have been worth much more back then than it is now.
Government also neglected to note that in 1948, Saudi Arabia decided that its take, which represented way more than Guyana would be getting, was not adequate and several rounds of negotiations started.
The concession agreement DPI referenced said that the operator was, “…The exclusive right, for a period of 60 years to explore, prospect, drill for, extract, treat, manufacture, transport, deal with, carry away, and export oil and oil products, and to create the facilities to carry out these activities.”
It states that the company was granted an ‘exclusive’ exploration area of more than 400,000 sq miles, covering almost all of eastern Saudi Arabia.
The DPI ad also states, “In return for these concessions, the company agreed to meet the following conditions: A loan of £30,000 gold or its equivalent, was to be payable within 15 days of the effective date of the agreement; an additional loan of £20,000 gold after 18 months if the agreement was still in force. Repayment of those loans was to be made by deductions from one-half of the anticipated royalties owing to the government.”
“An ‘annual rental’ payment of £5,000 gold, was to be payable in advance until the discovery of commercial quantities of oil. Upon discovery of oil in commercial quantities the company was to make an immediate advance royalty payment of £50,000 and another payment of the same amount one year later.”

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