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Changes to 2016 oil contract clearly indicate renegotiation is possible – Patterson
By Davina Bagot
Kaieteur News – Shadow Oil and Gas Minister, David Patterson is adamant that the 2016 Production Sharing Agreement (PSA) can be renegotiated, as changes to the contract were already made when the two parties – government and ExxonMobil – agreed to make it pellucid that royalty payments would not be recovered as an expense by the operator, back in 2019.
Shadow Oil and Gas Minister, David Patterson
Patterson during an Alliance For Change (AFC) press conference on Friday, however, told the media that the political will to renegotiate the deal must be present for the oil companies to comply.
According to him, “The actions of the (A Partnership for National Unity + Alliance For Change) APNU + AFC government clearly demonstrate that if the parties to the contract are willing, a review and renegotiation of the existing contract can be undertaken. This of course requires the necessary political will.”
President Irfaan Ali
To this end, the former Public Infrastructure Minister noted, “The AFC once again reconfirms its willingness to support a review of the oil contract for the mutual benefit of both the operators and the people of Guyana.”
He was keen to note that prior to the addendum of the oil contract being made public by Chartered Accountant and prominent Attorney, Christopher Ram, he was unaware that the changes were made.
Patterson explained, “It should be noted that between May 2015 and January 2016, the Minister responsible for petroleum was former President David Granger. Between January 2016 and July 2018 the responsible Minister was Raphael Trotman. From August 2018, this portfolio reverted back to former President Granger. This amendment was penned under the former President, Granger’s stewardship. While being previously unaware of this amendment, it is assumed that despite it always being known and accepted that any royalty payment was not cost recoverable, the parties may have wanted to make this more pellucid before oil production commenced.”
Further to that, the Shadow Oil Minister said, “The article by Christopher Ram also confirms the APNU+AFC’s stated position that the 2016 contract was in fact based on the 2012 model PSA as prepared by the (People’s Progressive Party Civic) PPP/C.”
The Irfaan Ali-led administration, after repeatedly promising to renegotiate the 2016 oil contract while on the campaign trail, has decided that the deal cannot be changed to maintain the sanctity of contracts. The government has been arguing that if it goes down the lane of approaching the oil company for renegotiation, it could send the wrong signal to other potential investors – that is, the country would not stick to contractual agreements it made. In addition, the government has often referenced the Stability Clause included in the oil deal. Notably, Article 32 of the deal was in existence before the PPP took office. This means that, while it was in Opposition, the PPP was well aware of this provision when it made the promise to renegotiate the contract.
Earlier this month, Kaieteur News reported, however, that the lopsided oil contract was amended in 2019 by the Coalition. The specific provision that was modified was with regard to the two percent royalty the country presently receives. It was Ram who made the revelation during a live television programme.
During the public broadcast, Ram insisted, “I know for sure – I am saying this and I will stand by it – I know for sure in 2019, there was an agreement, a variation of the contract, a renegotiation of a provision of the contract by the Granger administration. Let them say that Ram is not telling the truth.”
Ram later told this newspaper that the specific modifications were made to the royalty provision, and this change would make it definitive that the two percent royalty would not be recovered by the operator.
It must be noted that in the 2016 contract, expenses are recovered by the company out of the 75 percent of oil produced that is set aside as ‘cost oil’ for which recoverable amounts are to be paid. The PSA does not in any way spell out that royalty is not recoverable, but based on the provisions of the contract, Exxon’s subsidiary and the Stabroek Block operator, Esso Exploration and Production Guyana Limited (EEPGL) are able to expenses that include the royalty paid to Guyana.
A royalty payment in the oil or gas sector is a percentage of production paid to the owner of the resource, minus production costs. Royalties are free from costs and charges. It is this observation that pushed the then Government to address the situation.
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