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GUYANA OIL MAJOR ISSUES IN REVIEWING CONTRACT

Aug 16, 2020 News

Guyana’s contract with Exxon is a complex one, but one we know benefits the company more than the country. As we approach granting permission for the company’s third well (Payara), an opportunity exists for the government to review some terms of the contract so that we have a better deal for the wellbeing of all Guyanese. Here are some major issues we should be looking at fixing:

1. Contract must be fair to the Contracting Parties. It is advisable that EXXON and not its Subsidiary be a party to the Contract. A Contracting Party being a Public Company on the USA Stock Exchange has certain financial, ethical and social accountability obligations as defined in the Sarbanes-Oxley Act.
2. Legal Liabilities of each party must be defined and established. Guyana should not be made to bear the financial burden for actions of Exxon.
i. Problems arising on transportation of oil
ii. Oil spills
iii. Injury of workers

3. Very important to have a clause for Reclamation of our shores. Newly hired Canadian consultant Alison Redford should know about reclamations programme because Alberta in which she was the Premier has a very effective Reclamation Programme managed by the Alberta Government and funded through the contribution of the oil Companies.
4. Point of Possession has to be clearly defined. Currently Exxon takes ownership at the point of delivery, somewhere in Texas, USA. Exxon should take possession at position after the oil tankers are loaded – shipping point and the payment due to Guyana should be calculated at that point:
i. For Royalties
ii. Notes made for calculation of Profitability.
iii. Contribution for Reclamation
iv. Contribution for other Social Responsibilities
v. Guyana participation should be settled in cash paid by Exxon. Currently the contract stipulates for payments in at Destination or Delivery Point in Products (Oil). This is highly unacceptable and happens nowhere in the World. The current arrangement means that Guyana has to take its compensation in crude oil at point in Texas; then it has to refine and incur further selling costs to realize its earnings.
vi. Exploratory Costs incurred by Exxon should be accounted for and the entity where these costs are recorded has to be clearly identified and all supporting documentations maintained:
i. By type of cost and amount
ii. By fiscal period
Further exploratory costs should be set up as “Deferred Exploratory Costs” and charged to Exxon Operations annually in accordance with International Financial Reporting Standards (IFRS). It is suggested that the amortization of these costs be done on the basis of
Barrels Extracted on an annual basis/Estimated Reserves.
Cost should be subject to audit by Guyana on a timely basis.
7. Local Content should be clearly defined in the Contract. All jobs in the industry should be perused by a committee and every attempt should be made to employ Guyanese first before any expatriate. Redford should be aware of this requirement because in Canada, an outsider cannot come to Canada for a job that can be filled by a Canadian.
8. Exxon and its Subsidiaries must establish Operating Companies in Guyana and Guyana should benefit from PAYE, withholding taxes and other taxes based on earnings in Guyana. Currently, Exxon has established Its Operating Company in the Bahamas, circumventing the financial benefits and reporting on Guyana resources.
9. The Contracting Party –EXXON- should pay taxes on its profit earned in Guyana. A programme of tax credits based on Production, Local Employment and Investment should be developed to provide incentives for tax recovery, never tax-free for life; check on Dubai and Alberta.
10. The Contract should provide a plan for development of downstream Industries. This is what will create the employment of Guyanese and people from the Caribbean.

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