No legal constraints exist to prevent changes to terms when Exxon deal comes up for renewal

Aug 11, 2019 News

There is no provision in Guyana’s Petroleum (Exploration and Production) Act of 1986 which states that the terms of a Petroleum Production Agreement are insulated from revision when the license comes up for review.

GGMC Commissioner, Newell Dennison

GGMC Commissioner, Newell Dennison, in an invited comment confirmed that the renewal of the application is not an automatic process.
Dennison said, “…There is more to it. There is an element of due diligence; there is an element of reporting; there is an element of discussion to determine how the impact of the renewal will unfold etc.
“So it certainly isn’t automatic that when you make the application it is granted. There is an expectation however, that if there aren’t any material issues, that the renewal should take place.”
The GGMC Commissioner further stated that there is, usually, no intent to deny renewal without just cause. “You must have good reasons to do so if that is the case,” the official asserted.
ExxonMobil’s Production Sharing Agreement (PSA) for the Stabroek Block comes up for renewal next year October. Energy Department Head, Dr. Mark Bynoe has already provided the citizenry with the assurance that Guyana will have the requisite help to assist it when that time comes.
The official had disclosed this following queries from Kaieteur News about the need for a specialist team, especially when one considers the weaknesses of the current PSA.
Since the release of the Guyana-ExxonMobil contract, many industry analysts have said that there are numerous weaknesses which Guyana should address at the earliest chance, with the renewal period for the deal being highlighted as a golden opportunity for same.
The paltry two percent royalty is just one of the many provisions considered by industry analysts to be abnormal and in urgent need of regularization.
Specifically, University of Houston Instructor, Tom Mitro, recently pointed out to absurd provisions which allow expatriates and sub-contractors’ salaries or income to not be subject to tax. The Petroleum Consultant noted that under Section 15.12 of the PSA, expatriates’ salaries are not subject to Income tax if they don’t spend more than 183 days in the country.
Mitro said that this is an old trick in the book as the company simply gets many expats to be in rotation to avoid going over the 183 days. The Consultant stressed that most countries have plugged this tax avoidance loophole that companies have been abusing while noting that Guyana should too in all of the existing PSAs.
With respect to subcontractors’ income, Mitro highlighted that Section 15.10 of the PSA allows for it to be exempted from Corporate Income tax during the exploration period. The Consultant categorically stated that this is somewhat bizarre and should be corrected in Guyana’s model PSA.
Mitro had also told Kaieteur News that many countries have recognized how much they are losing in this regard and are already imposing the tax. He recommended that Guyana does the same.
Other issues that Mitro said must be corrected include paying the contractor’s income tax out of the country’s share of profits, rectifying the unusually large size of the blocks, upgrading the work obligations contractors have to meet as license holders, increasing the size of signing bonuses, implementing ring-fencing provisions to prevent costs of unsuccessful wells being carried over to that of successful wells, removing clauses which allow insurance premiums to be recoverable, and removing the troubling provision that allows the operators to fully recover interest and financing costs.

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