Exxon’s Contract will not change

Aug 19, 2021 News

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…as Jagdeo repeats any new terms, conditions only for other oil blocks

Kaieteur News – Consecutive administrations, since the release of the now heavily criticised Production Sharing Agreement (PSA) inked with ExxonMobil and other operators in Guyana, have been publicly committing to having the document’s template revised in order to secure better deals for the country in the future.

To this end, Vice President, Bharrat Jagdeo, has now committed to having the revised PSA template be made available in as little as six months, one that will be tougher than the one negotiated with the Exxon consortium.Jagdeo gave his views on the sidelines of the ongoing Offshore Technology Conference (OTC) 2021, which is underway in Houston, Texas, USA, where he is leading a Guyanese delegation.
According to the Vice President, Guyana’s aim is to increase its oil royalties and revamp other contract terms as part of a PSA regime for future crude and gas projects now in its draft stage.
“We have made it clear that in any new PSA we negotiate for those blocks, the conditions will be very, very different than the ones from the Stabroek Block,” Jagdeo said, including higher royalties and mechanisms for deducting costs from investment.
The Vice President during a special presentation on Tuesday last had said “all the deficiencies of this contract will be addressed.”
In his conference presentation, Jagdeo pushed back against critics as being, “totally unfair … because the world is going to continue to use fossil fuels in the future,” and Guyana should be allowed to benefit from this demand.
ExxonMobil for its part is on record publicly stating that “The terms of the contracts are competitive with other agreements signed in countries at a similar resource development phase. Our work and the support of the Government of Guyana are the basis of a long-term mutually-beneficial relationship that has already created significant value for the people of Guyana.
“These resources are being brought on line at a record-pace for the industry, resulting in significant cost savings for the government and its industry partners as multiple developments are being processed,” according to Exxon.
According to the Vice President however, the rising oil industry in Guyana will see the implementation of financial and capital discipline; so that the proceeds from the oil producing projects are invested in non-oil economy.
“That will give us sustainability in the long run. We will see growth in agriculture, the tourism sector, and overall Guyana’s economy expansion.”
The lopsided arrangement with regards Guyana’s PSA with ExxonMobil and its partners that govern the dealings with spending and recovery and profit sharing from the Stabroek Block, has been heavily criticised by numerous international experts and watchdog bodies.
Only recently the Institute for Energy Economics and Financial Analysis (IEEFA) released a report where it lamented the fact that ExxonMobil and partners initially reap 85 percent of the total take and pointed to the absence of ring fencing provisions and its impact on the country’s future earnings.
In fact, the IEEFA’s Director of Financial Analysis, Tom Sanzillo, in the report notes that with exploration costs being 100 percent recoverable in addition to other categories of spending, it means that the oil company’s annual take currently far exceeds the total revenues to be had annually.
The remaining unrecovered balance is carried over each year. It is generally assumed that as each year passes, the unrecovered amount is reduced.
Sanzillo, in his recent report reviewing Guyana’s future earnings from its offshore oil production, laments however that the total recoverable costs are currently far in excess of annual gross revenue from production.
A portion of gross revenue goes to retire development costs in addition to paying for operations and profit. Compounding the situation, it was noted by Sanzillo that while the current development costs can be recovered by 2028, the contractor has announced on a fairly regular basis that it has made new discoveries.
As such, “how the cost of these discoveries is factored into the overall project accounting is not publicly available, but Guyana will need to approve these costs for reimbursement.”
It was noted however, that the actual development plan for the Stabroek Block is to make more investments, “in fact, additional costs are already being incurred for more exploration.”
To this end, Sanzillo observed, “these additional development costs will be added to the total development costs and push back the date when the country will receive payments in the $6 billion per year range.”
According to Sanzillo, robust annual revenue payments to Guyana will be delayed as additional development costs are added to the cumulative unrecovered balance and that “the actual number of years until Guyana receives more robust profit oil payments is uncertain. For Guyana, actual total development costs are unknown.”

 

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