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Without ring-fencing provisions, Guyana will be shortchanged on every oil discovery – Financial Analyst
– says Exxon deal leaves citizens in a “dark abyss of worrisome financial risks”
Kaieteur News – The longer Guyana continues to drag its feet on putting ring-fencing provisions into the Stabroek Block deal, the more it continues to shortchange itself on every new discovery or oil project that comes into being. This is essentially the position of the Institute of Energy Economics and Financial Analysis (IEEFA).
Tom Sanzillo, IEEFA, Director of Financial Analysis
Like Kaieteur News and several other regional and international stakeholders have stressed since 2015, the IEEFA emphasised that ring fencing provisions in the PSA is key, as it would prevent ExxonMobil from deducting expenses associated with other projects against a producing field.
This is currently taking place with the Liza Phase One Project. In the absence of a ring-fencing provision, ExxonMobil and its partners are able to deduct costs associated with either developing a new oil project or drilling an exploratory well. All of these expenses can be charged against any project that is in operation such as the Liza Phase One and Two Projects.
In a report titled: “Lack of Ring-Fencing Provision Means Guyana Won’t Realize Oil Gains Before 2030s, if at All” by IEEFA’s Director of Financial Analysis, Tom Sanzillo, the devastating effects of failing to have this provision are highlighted.
In the 14-page document, Sanzillo notes that ExxonMobil has already received approval of the Payara field and even made discoveries at Yellowtail, Longtail, Uaru, Redtail, Mako, Tripletail and Whiptail in the Stabroek Block. Sanzillo noted, however, that all of the associated costs are being charged against the Liza Phase One Project thus reducing Guyana’s share of the profits.
By IEEFA’s estimates, Guyana should receive upward of US$6 billion annually by 2028 or sooner but because of all of these new costs, which neither ExxonMobil nor the government is disclosing, IEEFA’S Director of Financial Analysis posits, “Guyana will be shortchanged until the 2030s, if not longer.”
Sanzillo also stressed that the recent announcement of a discovery at the Whiptail site may help ExxonMobil’s stock price but said, one ought to be aware of the reality that it ultimately reduces Guyana’s profits.
He said, “The lack of contract protections means that every time Guyana announces it has received more revenue, it is actually being shortchanged.”
From a global perspective, Sanzillo said Guyana ought to pay attention to the fact that the oil and gas industry is facing stiff competition and lower growth expectations. On this note, he said Guyana selling more oil in an overcrowded market would be “risky business” as it may never see the promised annual revenues in the billions of dollars.
When the foregoing issues are placed alongside the fact that the true costs of ExxonMobil’s projects, its new discoveries, and its dry holes remain unknown, Sanzillo said that the Stabroek Block deal essentially leaves the people of Guyana in a dark abyss of worrisome financial risks.
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