‘Massive exploitation taking place in Guyana at the hands of clueless or corrupt Politicians’ – US commentator

Jan 04, 2023 News

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…says ExxonMobil wealthy stock owners would still get richer from a fairer deal with Guyana

By: Davina Bagot

Kaieteur News – A United States (US) Commentator on Latin America issues in one of his latest writings published by News Americas has called out American oil major, ExxonMobil, for its “massive exploitation of Guyanese” urging that the present day situation is equivalent to colonialism.

News Americas, according to its website is a news network that is the only daily syndicated newswire in the US, dedicated to covering the Black Immigrant Community from the Caribbean and Latin America. News Americas focus is on Immigration and Immigrant news on the Caribbean and Latin American Immigrant Communities in the US, marijuana news, as well as breaking news from the Caribbean and Latin America including business news, travel news, politics and entertainment.

One of its writers, Arthur Piccolo, in his piece called ‘Is Guyana getting screwed by Exxon?’ made it pellucid that the 2015 oil discovery by Exxon has positioned the nation to become the fastest growing economy on Earth but this is only good news if “you are OK with the massive exploitation of Guyanese taking place at the hands of oil super giant Exxon, and either corrupt or clueless Guyanese Government Officials.”

He explained that the situation is “another potent example of colonialism that is alive and well in the Caribbean and that undermines the integrity and the potential of the Caribbean.”

Piccolo said that the deal Guyana signed with Exxon in 2016 splits the income from the massive Stabroek Block evenly between Guyana and the company 50/50. While this may sound fair, he argued “It is a sucker deal no nation should have ever made.”

The 2016 Production Sharing Agreement (PSA) allows Exxon to deduct 75 percent upfront towards the cost of developing the resource, while the remaining 25 is divided between the two parties.

According to Piccolo, “The deal should be 75% to Guyana and 25% to Exxon and indeed Guyana could have negotiated even better if it was serious- 80% to Guyana. What is the difference for Guyana? Hundreds of billions of dollars lost to Guyana that Exxon will add to its huge profits for no good reason at all.”

The Writer contended that it is time to force Exxon to renegotiate its deal with Guyana. He quoted a section of a recent article by the Business Week Magazine, published by Bloomberg which stated, “In 2016, after the discovery was announced, Exxon and Guyana amended the original exploration deal they’d signed in 1999. The new contract, which split the oil revenue 50-50, with a 2% royalty paid to the Government, struck industry analysts as an unusually sweet deal for Exxon.”

Meanwhile, Tom Mitro, a senior fellow at Columbia University’s Center on Sustainable Investment, was quoted as saying, “It’s the most favorable I think I’ve ever seen in the industry, anywhere.”

That article also explained, “Exxon defends the contract, saying that it took on significant risks by gambling on a country with no history of oil production and very little energy infrastructure.”

“The terms of our petroleum agreement with the Government of Guyana are common in the industry and competitive with other countries at a similar stage of resource discovery,” a Spokesperson for Exxon says.

“But the terms with Guyana were drawn up after the discovery had been publicized as being unusually large. “Exxon makes the argument that they didn’t really know how much resource was there,” Mitro says. “Well, they did.””

Piccolo pointed out that Rystad Energy AS, an Oslo-based Consultant, said the global average for a Government’s take in offshore projects is 75%. The Writer argued that Guyana should have gotten more with an oil field as large as the Stabroek Block that is also easy to drill.

“The sheer geographic size of Exxon’s lease – 26,806 square kilometers (10,350 square miles) – also matters. It’s about nine times larger than Exxon’s average international offshore lease,” Mitro has calculated, and roughly 100 times larger than the average lease in the Gulf of Mexico.

“The Guyana contract includes an unusual provision allowing the company to immediately recover costs for additional exploratory work anywhere within that area. Exxon effectively pays itself back for those costs out of the oil that otherwise would go to the Government. Most production-sharing agreements covering large areas allow such deductions only within small, specified areas,” Mitro said, “not everywhere under lease.”

The American Commentator said that even though Guyana will realize tremendous income it never had before in the coming years from this deal, this simply is not enough.

“There is a name for what is taking place – it is called Colonialism. The rich and powerful lord it over the weak and the poor. And as always happens in these cases, the powerful either buy off those who can stop them, or the Local Officials are so stupid, the rich and powerful can get away with anything,” he argued.

The American Writer continued that while Guyanese would be so much better off with hundreds of billions more than it is presently getting,  the funds will instead go to one of the richest companies in human history – Exxon and their wealthy stock owners, “who would have gotten richer from this deal, even if it was fair to Guyana.”

PPP’s position on renegotiation

Even though it committed to renegotiating the oil contract in the lead up to the 2020 elections, the People’s Progressive Party (PPP) Government has now decided it will not amend the deal with Exxon as it fears it would deter future investments in the country.

Instead, the President Irfaan Ali-led Administration has committed to securing more benefits out of future oil deals, through a new PSA. This new deal will govern some 14 oil blocks presently up for auction as well as the Kaieteur and Canje blocks where exploration activities are presently ongoing.

The PNC/R’s position on renegotiation of the Exxon deal

Leader of the People’s National Congress Reform (PNC/R), Aubrey Norton, has said that he does not believe there should be a renegotiation of the deal as he respects ‘sanctity of contracts’ like his colleagues in the PPP.

At the same time, Norton explained that Government should seek more benefits out of the existing contract by ensuring thorough audits of the expenses are conducted. The Party also supports the idea of windfall tax.

In September last year, it said the PPP should increase the royalty rate when Brent Crude is above a determined price. A windfall tax is a one-off tax imposed by a government on a company, specifically targeting those that benefit from something they were not responsible for.

AFC – the lone political supporter of renegotiation

Though previously a stern advocate of the 2016 PSA, the Alliance For Change (AFC), the country’s third largest Political Party is in support of a renegotiated oil deal with Exxon.

In August last year, the Leader of the AFC, Khemraj Ramjattan, told this newspaper, “I would be one of the first Parliamentarians to say if the new Government here is going to renegotiate a better contract, out of the one my Government signed, I am in support of that.”

It was the AFC’s Raphael Trotman, former Minister of Natural Resources that entered into the agreement on behalf of Guyana.

During a Press Conference September last, the AFC reasoned that when the Coalition Government renegotiated and signed the 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 validates the calls for a renegotiation of the lopsided deal.

Exxon shoots down need for renegotiation

In an interview with Mikhail Rodrigues, popularly known as the Guyanese Critic in August last year, the ExxonMobil Guyana President, Alistair Routledge shot down the need for Guyana to renegotiate the lopsided deal.

Routledge in responding to the question of considering a renegotiation of the oil contract said, “The business we are in is we don’t know what’s coming or what’s in the corner. It may look great today but I would say we kind of made it look easy so far. A lot of the resource that we found is going to be more difficult to develop. The return on those won’t be as good as the Liza Field. The first Field that we found was the best resource that we found in the Stabroek Block. That was where we started.”

He went on to explain that so far, the reservoirs have not been as lucrative. At the same time, the high price of oil on the global market “will almost certainly fall” which means that the business must be “robust and durable” for all stakeholders to allow them to continue investing in the production of Guyana’s oil and gas resources.

The 2016 PSA

Activists in Guyana have been lobbying for changes to be made to the 2016 PSA 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 forces Guyanese to pay their share of taxes, amounting to millions of US dollars each year. This figure is likely to further balloon 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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