“Wishful thinking” that Payara could have been leveraged to renegotiate Stabroek deal

“Wishful thinking” that Payara could have been leveraged to renegotiate Stabroek deal – VP

Oct 03, 2020 News

By Kemol King

Kaieteur News – Vice President, Dr. Bharrat Jagdeo yesterday said that it is wishful thinking to assume that the Payara development permit could have been leveraged to demand a better Production Sharing Agreement (PSA) from ExxonMobil.

Vice President, Dr. Bharrat Jagdeo

The politician delivered his latest rebuke of calls to get a better deal during a press conference at the Arthur Chung Conference Centre. The 2016 deal signed for Exxon’s operations in the Stabroek Block by former Minister of Natural Resources, Raphael Trotman has been widely condemned for a string of poor provisions, including a paltry two percent royalty share. The People’s Progressive Party Civic (PPP/C), which took office in August, has criticised, but refuses to renegotiate, the deal.
“There is a group,” Jagdeo said, “that believes we should have held up Payara and not issue the licence, and use it as leverage to change the production [sharing] agreement. And it’s wishful thinking, frankly speaking. It’s wishful thinking that you could have done that now.”
The Vice President reported speaking to experts whose assessments of the market are very different from the comments being made by persons like former Petroleum Advisor to the Government, Dr. Jan Mangal. There is a large group of people, he said, who believe that calls for renegotiation cannot be substantiated because of the effect the COVID-19 pandemic has had on the oil industry. He said many companies are losing value, and that means their ability to raise money is also diminished. In this regard, Dr. Jagdeo pointed to the US$9B development cost Exxon claims Payara will need, and said that Guyana cannot raise that much money on its own.
“That’s twice the size of our total economy [which is just over US$4B] on this one investment.” Dr. Jagdeo said.
He alluded to divestments of assets by oil companies in other part of the world, noting that Guyana is privileged. The VP also worried that the growth of the global renewable energy industry could one day hurt oil prices, which he asserted made it necessary to approve the Payara project quickly.
“There is a short window of opportunity,” he said, “the renewables are yapping at people’s feet.”
He noted that Exxon is here because of the low breakeven price to produce Guyana’s oil and the fiscal conditions, and that it is important to ensure that the investment moves forward.
“We made it clear,” Jagdeo said, “that the production [sharing] agreement was signed already and that Exxon, when it comes to future agreements that will happen when they start developing the Canje Block and the Kaieteur Block, that those agreements are going to be very dissimilar to the one that they signed for the Stabroek Block… The conditions of those agreements will be established when we work out what a model production [sharing] agreement for the future will be. So that is when, for future developments outside of the Stabroek Block, the terms will change substantively. That is clear.”
He said, however, that the government is undertaking a “review” of the agreement, and that a team is expected to report to him on ways that the government could claw back value from various provisions in the agreement. For instance, he has indicated that the administration wants Exxon to dedicate more funding for training locals than is stipulated by the agreement. In this regard, he said that the government believes it can get more value without “renegotiating” the contract.
The Vice President took the opportunity to respond to Mangal, who is a major critic of the government’s handling of the sector. Mangal and lawyer, Melinda Janki had both advised that Guyana should take all the time it needs to review Payara. Dr. Mangal very specifically advocated for Payara to be used as leverage for a better deal. Jagdeo wondered about the petroleum expert’s advocacy for renegotiation when he advised the David Granger administration, even suggesting that the consultant should have resigned from his advisory post when he realized what the Granger administration had done with the Stabroek Block deal.
He criticised Mangal’s approach to giving advice in the press, and opined that the good governance advocate tends to disparage and brand as corrupt people he doesn’t know anything about. The VP said that he doesn’t have a problem with Mangal and that if he has technical expertise, then his expertise should be put to use but that “it’s the lecturing” that does not sit well with him.