Guyana cannot renegotiate contract without Exxon’s consent

May 08, 2021 News

…agreement also prevents new taxes or more royalty on oil operator

Political leaders, social and other commentators have been calling ad nauseam, for a renegotiation of the 2016 Production Sharing Agreement (PSA) with Esso Exploration and Production Guyana Limited (EEPGL), but this cannot happen without the consent of ExxonMobil.
This is due to the fact that a stability clause has been inserted into the PSA that was inked with the Guyana Government.
According to that provision, except as may be expressly provided therein, “the Government shall not amend, modify, rescind, terminate, declare invalid or unenforceable, require renegotiation of, compel replacement or substitution, or otherwise seek to avoid, alter, or limit this Agreement without prior consent of the Contractor—EEPGL, whose majority shareholder is ExxonMobil.”
Additionally, the PSA, commonly referred to as a contract, also restricts Guyana from imposing any additionally financial obligations on the oil operations.
Under the same Article in the PSA, subsequent to the inking of the agreement, “the government shall not increase economic burdens of Contractor under this agreement by applying to this agreement or the operations conducted thereunder, any increase of or any new petroleum related fiscal obligations, including but not limited to, any new taxes whatsoever, any new royalty, duties, fees, charges, Value Added Tax (VAT) or other imposts.”
Under the PSA, Guyana collects two percent royalty on the oil produced and sold from the Stabroek Block.
Additionally, the partners divide any profits had, 50/50 after deducting cost oil at a cap of 75 percent of total production.
According to the provisions of the contract, should the government seek to impose any new taxes, fees or other such financial obligations, then government “shall promptly take any and all affirmative action to restore the lost or impaired economic benefits to contractor…”
ExxonMobil Guyana has in the past said, it is amenable to a review of the PSA but not the renegotiation of its contract since that compromise the principle of sanctity of contracts, which is critical for investment planning.

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