Exxon Oil Contract Misinterpretations

Feb 13, 2020 Letters

Dear Editor,

In regards to Kaieteur News editorial on 9 February. 2020 entitled, “Give us a fair deal or leave,” I was reminded of an old Yiddish proverb, “A half-truth is a whole lie.” The people of Guyana deserve better than this type of one-sided reporting.
The whole truth is this: The Guyana/Exxon contract is a fair deal for both parties. The Government of Guyana did an admirable job of negotiating the contract. Yes, there is a 2% royalty, but there is also a 50% working interest owned by Guyana. Royalty participates in no costs, whereas working interest pays its share of costs to explore and develop the project.
Exxon treated Guyana as though it were an oil partner (like CNOOC). The great advantage and wonderful difference for Guyana is that Exxon has advanced all of Guyana’s share of the costs, and Exxon would have borne the entire loss if they did not find oil.
Exxon only gets to recover the costs it absorbed for Guyana if the project proves successful. Had the drilling failed, Guyana would not have been required to repay any of its costs. Since the drilling has been wildly successful, Exxon will temporarily take part of Guyana’s 50% until Guyana’s share of costs are repaid. After that, the full 50% goes to Guyana.
In summary, from day-one, Guyana receives about 14.5% of the project cash flow. Then, after Exxon recovers the cash it advanced to Guyana, Guyana’s cash flow leaps up 37.5% more, for a total of share of 52%. The 2% royalty is important, but it just a small part of the enormous wealth that will flow to Guyana from this fair contract.
After 35 years in the oil industry and having negotiated many exploration joint ventures, I believe the current contract between Guyana and Exxon is equitable for both parties. The proposal to demand a flat 10% royalty would be a disaster for Guyana. I am sure that Exxon would be delighted to take back the 50% working interest, with all of its associated costs, and just leave Guyana with a paltry 10% royalty. But the citizens of Guyana would not be pleased by that deal.
In closing, I have no association with Exxon or political affiliations in Guyana. I was in Georgetown a month ago and met with several Government officials. I found all of them to be keen to carry out their responsibilities and well aware of the need to be transparent about Guyana’s new-found wealth.
I imagine you simply misunderstood the contract. I assure you that it is fair to Guyana.
My best wishes to you and to your country,

George O. Mallon

Publisher’s Note: Kaieteur News has done extensive research showing numerous countries which have less than Guyana but way better terms. Apart from our irrefutable findings, institutions like the International Monetary Fund, Open Oil, Global Witness and several other reputable industry experts have debunked the baseless perception that Guyana got a fair deal. It is disappointing that you would also peddle such ill- conceived notions. I challenge you to name one country that is blessed with Guyana’s oil riches and made to sign such a one-sided contract.

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