10 billion barrels increase in Stabroek Block reserves validates calls for renegotiation- former EPA Head

Sep 29, 2022 News

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By Davina Bagot

Kaieteur News – In 2016, when the Coalition government renegotiated and signed the Production Sharing Agreement (PSA) with US oil giant ExxonMobil, the country had only found approximately 1.1 billion barrels of oil in the Stabroek Block. Six years later, over 10 billion more barrels have been discovered in the country’s Exclusive Economic Zone, a major increase that the former Executive Director of the Environmental Protection Agency (EPA), Dr. Vincent Adams believes, validates calls for a renegotiation of the lopsided deal.

Dr. Adams, during an online interview with Globespan 24×7 on Monday evening, told viewers that not only has Guyana uncovered more riches subsequent to the agreement being signed, but exploration activities are still ongoing while government has turned its face against seeking more value for its resources.

The former EPA Head is not convinced that the political excuse being used to not renegotiate the Exxon contract is valid. In fact, the scholar with years of experience in the oil and gas industry is confident that Guyana can get a better deal now that it has discovered 10 billion more barrels of oil in the Stabroek Block, where Esso Exploration and Production Guyana Limited (EEPGL), commonly referred to ExxonMobil Guyana is operating. He said that it is customary for changes in an environment to inform modifications to contracts in countries around the world.

According to him, “I have spent 30 years at the highest level of the US government and I negotiated (and) I evaluated contracts. That was part of my life and as a matter of fact, that was a main part of my life, and I’m talking about the Exxons of the world. I have seen many contract you can think about and changes are expected and the one thing that you always have a justification for changing a contract is when there is a major change.”

He went on to point out, “As a matter of fact, in every government contract we had, we had what was called a change control board. Every change that comes in, it goes to the board and then we figure out what to do with it in terms of the contract so all this stuff about sanctity is…all nonsense.”

In addition to this, the former EPA boss highlighted the fact that modifications have already been made to the 2016 contract, which further shows the invalidity of government’s “sanctity of contracts” argument.

Dr. Adams said, “The full liability coverage that I put into the Permits that was a major change to the contract. The contract has said that they are gonna leave all liabilities to EEPGL, but EEPGL does not have any assets so I forced the full liability coverage so that was a major change.”

Another modification to the contract was also made to allow for unfettered visits on the Floating Production Storage and Offloading (FPSO) vessels, he said. “In the contract, it said, the government- believe this or not- the government has to give seven days notice to visit the FPSO. I changed that for unfettered visits at any time, including unannounced visits,” Dr. Adams noted.

More recently, Guyanese also learnt that a major modification was made to the PSA to make it definitive that the two percent royalty would not be recovered by ExxonMobil as an expense. To this end, Dr. Adams believes that the sanctity of contract explanation is “mere nonsense”.

The former EPA head argued, “Major changes always justify renegotiations. Remember when we signed this contract a lot us didn’t even have a clue we were going to find (so much) oil. So we found this vast amount of oil, are you telling me that’s not a major change? Are you kidding me?”

In a July 28 report published this year by Forbes, it was explained that Guyana has been the global leader for new discoveries since 2015, with 11.2 billion barrels of oil equivalent, which amounts to 18% of total global discoveries and 32% of discovered oil. The report was keen to note that the country’s success was driven by the prolific Stabroek Block, where a consortium led by ExxonMobil has announced a series of major new discoveries since its first find.

It must be noted that when the contract was inked, Guyana had not only found 1.1 billion barrels of oil, but this discovery was pinned at two sites- namely the Liza One and Liza Two projects. Since then, the country’s total oil discoveries have climbed to 33.

In the meantime, exploration activities are still ongoing in the Stabroek Block.

For months now, citizens in Guyana have been protesting government to renegotiate the oil contract with Exxon. In fact, the PPP had promised to “review and renegotiate” the deal entered into by the former government; however the party has now decided that it must maintain the agreement.

Citizens in Guyana believe that the present agreement only favours the oil company, as Guyana receives a mere two percent royalty for its sweet light crude and settled for 50 percent profit sharing, after Exxon takes 75 percent of the earnings to clear its expenses.

The deal that the oil company often brags about to its shareholders, also force Guyanese into paying their share of taxes, amounting to millions of US currency each year. This figure is likely to further balloon too as more operations come on stream.

In addition, the country is allowing ExxonMobil to operate offshore without full liability coverage in the event of an oil spill, which means that the risk is borne by Guyana. Another key provision that is lacking in the document is ring-fencing provision, which would avoid the oil company from using the petroleum revenue in one field to cover for expenses in another.

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