Royalty will be higher in future contracts –Energy Dept. Head -Consultants stress the need to revise lopsided provisions

Jul 04, 2019 News

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By Kiana Wilburg

On the sidelines of a Guyana Oil and Gas Economic Summit being held in London, Head of Guyana’s Energy Department, Dr. Mark Bynoe, told Reuters yesterday that royalties for future contracts would be higher than the one to two percent that prevails in existing agreements.

But some industry analysts say that while this is a good sign, they remind that there are several other fiscal terms which have to be revised for in Guyana’s model Production Sharing Agreement ( PSA) as well as existing deals.
University of Houston Instructor, Tom Mitro, told this newspaper that it is always a good sign when Governments are continuously examining and trying to refine fiscal terms and Production Sharing Agreements (PSAs) for the future.
Mitro said that royalty tends to be a relatively “easy to understand concept” and a “headline” issue.
The Petroleum Consultant said, “But I also think it can be good to examine other aspects of the arrangements with the companies such as production splits, taxes, decommissioning, and work obligations.”
Mitro said that another important aspect to consider is how to incorporate future price and reserve uncertainties into the standard agreements. In many countries, the University Instructor who has over 32 years’ experience in the industry, said that royalty and production split are determined by a sliding scale which will vary with either the level of production or the rate of return earned by the investor.

In this way, he highlighted that the agreements can cover a wider variety of future conditions that may be encountered without having to consider renegotiating.
Mitro noted that Dr. Bynoe’s statements imply that he and his team would not be looking at existing agreements. If that were to happen, the official said it would normally have to follow a different, more consultative process.
Also sharing his invited opinion on this subject was former Advisor to the President, Dr. Jan Mangal. The Consultant stated that Dr. Bynoe’s focus on future contracts is a red herring.
Dr. Mangal said, “Although we need future contracts to be more favourable, that is not going to solve the problem. All of the oil might very well end up being in the Stabroek block or in the adjacent Kaieteur and Canje blocks…
“We need better royalty for the Stabroek Block and we need to rescind the Kaieteur and Canje blocks that were granted under suspicious circumstances.”
The Oil Consultant added that what Dr. Bynoe is doing is disingenuous; it does not address the real issue of getting more value for Guyana.

EXXONMOBIL WAS NOT OPEN
Guyana’s two percent royalty that is enshrined in the deal it signed with ExxonMobil and its two partners, Hess and CNOOC/ NEXEN, has been heavily criticized by local , regional and international consultants as well as respected financial institutions.
Yet, the company has been adamant about the non-renegotiation of these and other terms.
Just a few months ago, Kaieteur News exposed that the multi-billion dollar company’s would not be open to Guyana securing a royalty. This was revealed in a brief on the technical meeting between ExxonMobil and officials of the Guyana Geology and Mines Commission (GGMC).
The meeting occurred in April 2016. The document was prepared by GGMC Commissioner General, Newell Dennison.
In his report on the meeting, Dennison said it was put on the table that there were some fiscal reviews being done and while they would not be concluded before finalizing the new agreem

ent and licence (which were both signed in June 2016), it would be necessary to include certain principles.
The GGMC Commissioner General said, “A provision for a royalty in a contemplated hybrid PSA (Production Sharing Agreement) was mentioned and in the context of ensuring that Guyana is not at a disadvantage in a high oil price environment in the future.
Esso (ExxonMobil) was not at all receptive to that. However, it was left on the table.”
He added in the document, “I have the view that there may be a fair chance to model some notional improved royalty to kick in, but I also speculate that in the environment of deep water, deep target development, the price of oil would have to go up significantly before the departure of the financials that prevail now and what could materialize becomes of material consequence.” (The entire brief can be seen by following this link: file:///C:/Users/k.wilburg/Downloads/GGMC%20Brief%20on%20Esso%20April%2015%202016.pdf).
Minister of Natural Resources, Raphael Trotman, had said that Dennison and other GGMC officials were the lead negotiators for Guyana when the ExxonMobil contract was being tweaked in 2016.
Dennison’s suggestion, however well intentioned, apparently fell on deaf ears since no such provision made it into the modified contract.

 

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