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ExxonMobil says ring-fencing must stay out of oil deal to encourage investment
Kaieteur News – Already swimming in profits, thanks to the lopsided 2016 Production Sharing Agreement (PSA) it signed with Guyana, ExxonMobil is refusing to give as much as a penny more in profits to the country.
At its first press conference for the year, Esso Exploration and Production Guyana Limited (EEPGL) – or ExxonMobil Guyana – said oil and gas operations are all about encouraging investment, when asked about its willingness to include a ring-fencing provision to the contract.
ExxonMobil’s Country Manager, Alistair Routledge while responding to a question from Kaieteur News said, “At the end of the day, it’s all about encouraging investment to maximise the return of the country.”
ExxonMobil Guyana Country Manager, Alistair Routledge
Ring-fencing provision, for those who may not be familiar with the term, serves as a shield and prevents burdensome expenses from being lumped onto one project, thereby shortening profits received.
Guyana has been repeatedly warned by international energy institutes that the country may never see the promised annual revenues from its oil sector, as the “one-sided” oil contract gives ExxonMobil and its partners the benefit, leaving Guyana and its people out of their fair share of the wealth.
The contract allows Exxon to deduct 75 percent of the resources each month to cover expenses to develop oil and gas projects. The costs that are not covered each month go over to the following month.
In this regard, Exxon believes, “the current mechanism is very effective.”
Routledge told reporters, “These deep-water developments have a significant up-front investment cost and the current mechanism supports that so I’m not sure that starting to ring-fence what could potentially be larger projects in the future would actually encourage the sort of developments the country wants to see.”
According to him, “We have to be very cautious about trying to change things which could have quite negative impact on the overall value for the country.”
Guyana has so far managed to pay back ExxonMobil and its partners, Hess and CNOOC, approximately US$4 billion for developing the Liza Phase One offshore project.
Under normal conditions, with ring-fencing, the country would have now been reaping 50 percent of the profits from that project, but in the absence of this key provision, Guyana will continue to receive a meagre 12.5 percent in profits.
Presently, Guyana is producing approximately 360,000 barrels of oil per day at the Liza One and Liza Two projects in the Stabroek Block. The third project, Payara is expected to startup this year. The oil company has already received approval for the fourth development – Yellowtail. In the meantime, the fifth and sixth projects are pending approval at the Environmental Protection Agency (EPA).
It must be noted that these two operational projects are paying for the costs to develop these projects that are yet to start producing oil as the country lacks ring-fencing.
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