Placing the cart before the horse

Nov 09, 2019 Features / Columnists, Peeping Tom

Guyana has not yet signed a Crude Lifting Agreement with Exxon Mobil and its partners. Yet, we are being told that Exxon Mobil will take the first million barrels of our crude oil.
Last July, government agencies were invited to a workshop on the Crude Lifting Agreement. According to reports, it was explained that the Crude Lifting Agreement refers to the agreement which will govern the removal of the crude from the Floating, Production, Storage and Offloading (FPSO) vessel into a tanker which will then transport it to global markets. The agreement, it was said, is a means of ensuring transparency in the process.
The Agreement has not been signed as yet. The agreement is expected to be signed this coming week. So if no agreement has been signed, then under what arrangement has it been decided who will get what? You would have presumed that who gets what would have been part of that agreement.
The government’s explanation is that the first lift normally has impurities and therefore it is best that this be given to Exxon. But what is the basis for assuming that subsequent lifts will not have equal or more impurities? And why would Exxon want to accept a lift which is likely to have greater impurities than subsequent lifts.
Guyana should have received the first lift. It is Guyana’s oil and the country should have been the first, just as a reminder to the oil companies that the resource which they are extracting is not theirs but belongs to the people of this country.
In early October, the Department of Energy indicated that every eight or so days, an entitlement to a lift can be created. It also said that four entities, including the government, are entitled to lift and can take turns as to how the lifts are apportioned. However, it is possible for parties to cede their turn.
There are reasons, though, why Guyana cannot accept the first million barrels. In fact it may not be able to accept the first 10 million barrels. It may have to cede more than one turn.
Guyana has to pay pre-contract costs, which is expected to be close to US$900M. Exxon will most likely reclaim its pre-contract costs in crude oil which will be about 17 million barrels (using US$55 per barrel). If Exxon is to take all its pre-contract costs at one go, it would mean that, at an average daily production of 120,000 barrels, Guyana would not receive a drop of crude oil until about four months after production begins. But most likely Exxon will take its pre-contract costs in stages and not all at one go. Or so the government may be hoping.
The other reason why Exxon may be taking the first million barrels is because two years after signing the production sharing agreement, the government has not yet entered into any deal as to who will buy its share of oil. One has to ask why this has not yet been done, given that the Department of Energy was established since last year.
Guyana has nowhere to store its share of the oil if it has no buyer. And the buyers out there know this and will use this to their negotiating advantage.
The finding of a buyer should have been a priority. You cannot wait until the last minute then to go out to look for a buyer. You will get a poor deal, because buyers will know that you are under pressure to quickly sign an agreement.
Guyana is only now looking for someone to help it determine how it will sell its oil. The person is not going to buy the oil, but only tell the government how to best approach the problem.
It is not going to be easy to find a buyer at short notice. And with one of the partners saying that production is likely to start in December, one month away and four months ahead of schedule, Guyana may end up rushing into a poor deal. But that is nothing new. It has been the norm of this government.
Exxon gets the first million barrels. Let us hope by the time it is our turn to get our first million, we have a buyer and a good price.

(The views expressed in this article are those of the author and do not necessarily reflect the opinions of this newspaper)