Oil sector will be plagued with difficulties until death if “original sin” not fixed-TIGI President

Dec 11, 2021 News

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Kaieteur News – Head of Transparency International Guyana Inc. (TIGI), Mr. Fred Collins holds the view that good governance of the oil sector will continue to be undermined if “the original sin” or root case is not fixed by the leaders of the day.

During his recent appearance on Kaieteur Radio’s Programme, Guyana’s Oil and You, Collins said the “original sin” refers to the 1999 award of 600 blocks as part of the Stabroek Block licence to ExxonMobil when the law only allows for 60. This newspaper had previously reported that former Minister of Natural Resources, Raphael Trotman had a golden opportunity to correct this illegality but chose not to, citing various reasons, such as the law allowing for such awards to be done in the event of special circumstances.
But Collins was keen to note that he does not agree with this line of argument while noting that the country will pay the price for failing to correct the state of affairs that reflects total disregard for the law.
The TIGI President said, “…when we examined the contract certain things became very clear and one of those was what we call the original sin and that original sin was the wholesaling of the blocks which the law does not allow. The law requires, and still does, that the maximum number of blocks that could be awarded on a single license is 60 blocks, but 600 was awarded instead.”
He said this “original sin” has resulted in a domino effect of dire consequences that now plague the sector and would continue until the end of the industry if not addressed. Due to the sheer size of the block, Collins noted that ExxonMobil and its partners, Hess Corporation and CNOOC Petroleum Limited, have the ability to produce multiple projects across a massive acreage. He noted that the absence of ring fencing provisions to prevent costs for projects in the development stage are not deducted from those which are producing has also made matters worse. Collins noted that if the Stabroek licence had 60 [blocks] as the law prescribes, the impact of no ring-fencing provisions would not have been so economically damaging.
With no ring fencing provisions in place and the leverage to go as fast as it wants with exploration and development, ExxonMobil has racked up astronomical costs, which the State is yet to audit. In fact, Guyana is yet to audit over US$10B in costs Exxon said it expended from 1999 to 2017. Even if Guyanese authorities conduct the audits tomorrow, they would essentially be left at a disadvantage since the two-year timeline to object to ineligible costs has elapsed.
What also complicates this predicament Guyana is caught in, is the fact that ExxonMobil has the most favourable relinquishment provision of all the oil companies in the basin. Following negotiations in 2016 with Trotman and other officials in the David Granger administration, the oil company is allowed to relinquish 20 percent of the oil block in seven years when the law prescribes that 75 percent of the concession be returned in that timeline. This was made possible due to a loophole in Guyana’s oil laws.
This very matter was raised a few months ago by Chartered Accountant and Attorney-at-Law, Christopher Ram during an interview with Kaieteur News.
Ram, who is also a member of TIGI, had explained that the initial period of a prospecting licence is four years. Such licence is subject to two renewals of three years each. Expounding further, the lawyer said, “The standard provision in the Petroleum Act is that on an application for first renewal at the end of the four years, the company is required to give up 50 percent of the blocks granted and on an application for the second renewal, which is at the end of seven years, it is required to give up 25 percent of the remaining concession.”
He added, “At the end of the 10 years, which brings you to the end of the third renewal period, the company has to give up all portions of the block not subject to a production licence…”
He noted that under normal circumstances, ExxonMobil would have been expected to follow the foregoing process. Instead, through the reckless abuse of the loophole in the law, which obliges that the subject Minister can vary the relinquishment arrangements, no relinquishment is required after four years and only 20 percent after the end of seven years, compared with 75 percent in normal situations.
He was keen to note that the first person to utilise this loophole was Janet Jagan in the 1999 Pre-discovery Agreement and made worse under the 2012 model Agreement produced during the time of former President, Donald Ramotar and former Natural Resources Minister, Robert Persaud. But, the Chartered Accountant reserved his disgust with Trotman, Greenidge and Granger, the key players in the 2016 post-discovery Agreement and its relinquishment provisions.
Ram expressed the fear that, with little oversight and undisclosed arrangements between ExxonMobil and the Government, the blocks to be given up in 2023 can be subject to any form of machinations via production licenses. ExxonMobil and its friends are pushing for more and more explorations licenses, so that by the time the first relinquishment is due in 2023, the 20% would be of a considerably reduced portion of the Stabroek Block.
To date, ExxonMobil has made over 20 discoveries in the Stabroek Block. It is also rushing to find more oil discoveries before the end of the year and no doubt before 2023.

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