Oil companies ripped off T&T 60 years of royalties

Jun 20, 2022 News

– using loopholes in contract; Guyana warned

By Kiana Wilburg

Kaieteur News – Prior to December 2017, Trinidad and Tobago had found itself entrapped in a contractual situation with oil companies that most citizens and industry stakeholders described as bordering on being “almost criminal”.
Instead of the companies paying royalties out of their share of profit oil, weak Production Sharing Agreements (PSA) left T&T making those payments on behalf of those foreign entities. This was taking place for almost 60 years due to there being no explicit provision outlining that oil companies must make such a payment to the State and that same is not recoverable under any circumstance.

Vice President Bharrat Jagdeo

The foregoing dilemma which robbed the Caricom oil producer of what it deserves, forced it in 2017 to eventually overhaul its fiscal regime for the sector and introduce a new and improved fiscal model that demanded a 12.5 percent non-recoverable royalty. Taking T&T’s decades-long tragedy into consideration, stakeholders there have urged Guyana to guard against similar abuses early on. They shared with Kaieteur News that such a reprehensible state of affairs took place because there were some actors in the governing body that were inclined to provide a “soft touch” to the oil industry, much to the benefit of the operating companies.
That “soft touch” approach is what even led to key advice on signature bonuses by technical personnel being ignored. They said that government was advised to ensure signature bonus, a sum of money paid immediately after signing a contract to explore an oil and gas block, was noted in the PSAs as a non-recoverable item. However, “certain parties” made sure this was not done and much to the fiscal detriment of Trinidad, signature bonuses were recovered for decades. It is in light of these startling lessons Guyana is being strongly advised to protect itself from being shackled to the same abuse before realising it too late.
Just last week, Kaieteur News asked Vice President, Bharrat Jagdeo if he has any guarantees that Guyana’s two percent royalty is being recovered by Exxon’s subsidiary in the Stabroek Block, Esso Exploration and Production Guyana Limited (EEPGL). The Vice President had said, “I don’t want to venture public positions that I may have to walk back on at some point in time so I will be a bit cautious on this.” He said such issues he would not leave to politicians to answer but rather, in the much more capable hands of the nation’s tax and legal authorities/guardians.
VP Jagdeo was keen to note that there have been some issues of contention between Exxon and the Guyana Revenue Authority (GRA) as regards what the company is entitled to under the Production Sharing Agreement governing the Stabroek Block. “They (Exxon) said for example they are entitled to a number of vehicles. They applied for 20 four-wheel drives to bring in, fancy vehicles, and we said they have to pay; they are not entitled under the PSA. We said you can rent from locals and if you want to you should pay taxes; you can’t get it duty-free. So I prefer if the auditors or tax people lead on those charges, not the politicians because sometimes you can say something that the other side can use as a signal when in discussions with GRA,” the Vice President said.
Kaieteur News has examined the PSA pertaining to recoverable and non-recoverable items. In the latter category, there is no explicit listing of royalty being an unrecoverable item. (The photo attached to this article outlines clearly, the categories that are not recoverable, again, none of which relate to royalty).
It is crucial to note that oil companies such as ExxonMobil have paid US$3 billion over the past 15 years to resolve a range of charges including that they regularly cheated the U.S. government and Native American communities out of royalties on oil and gas leases, raising concerns they use similar techniques to rob citizens in poor countries of resource wealth. In the lawsuits settled with the U.S. government, lawyers and whistleblowers have alleged that it’s relatively easy for energy companies to fudge their numbers using dubious accounting techniques and outright fraud.
Audits and compliance checks by the Office of Natural Resources Revenue, the U.S. agency charged with managing America’s energy and mineral leases, similarly have found billions in corporate underpayments on oil and gas leases since 1998. Isabel Munilla, a senior policy advisor at Oxfam America, which is part of a coalition campaigning for greater transparency in the oil, mining and gas industries had said, “If this is happening in the U.S, where we have a strong legal and regulatory system, which should in theory reduce the incentives for this type of behaviour, it’s very likely to be happening around the world, especially in places with much weaker governance systems.”
Further research on Exxon’s treatment of nations on royalty payments further underscores the need for authorities here to be extremely cautious. According to a 2010 publication by the Oil & Gas Journal, ExxonMobil Corp. had agreed to pay a US$32.2 million federal fine to resolve a whistleblower’s claim that its affiliates knowingly underpaid natural gas royalties on federal and American Indian leases. The US Department of Justice had said the claim arose from allegations that Mobil Natural Gas Inc., Mobil Exploration & Producing US Inc., and their affiliates systematically underreported the value of gas taken from the leases from March 1, 1998, to November 30, 1999, and consequently paid less in royalties to the federal government and various Indian tribes. (https://www.ogj.com/general-interest/article/17284815/exxonmobil-to-pay-322-million-to-resolve-whistleblowers-suit)
This newspaper also found that in other cases investigated between 1998 to 2000 the US Department of Justice had intervened against seven oil companies, ExxonMobil included, for knowingly undervaluing oil extracted from public and Indian lands. For that period, the Department of Justice recovered in excess of US$170 million in its oil royalty suits. (https://www.justice.gov/archive/opa/pr/2000/March/156civ.htm)
In 2003, ExxonMobil was also found to be defrauding the state of Alabama out of royalty payments and was ordered by the courts to pay up more than US$100 million in back-pay royalties. According to www.classaction.org., in August 2012, a Kansas judge approved a US$54 million settlement with landowners who claimed they were underpaid royalties when ExxonMobil made deductions for expenses that occurred downstream of their wells. The settlement also ended a lawsuit filed in Kansas state court against ExxonMobil over royalties dating back to 2000.
At the moment, Guyana is conducting audits of Exxon’s post 2017 bills which total US$9B. The consortium, which is made up of local and foreign auditors, is expected to complete same in four months. It is unclear if the team would be examining said bills to ensure royalty is not being recovered or if royalties were underpaid.