VP Jagdeo breaks SANCTITY OF CONTRACT with Exxon for Kaieteur and Canje blocks but refuses to do same for Stabroek block

Mar 12, 2023 News

Kaieteur News – When it comes to calls for the renegotiation of the Stabroek Block Production Sharing Agreement (PSA), the Irfaan Ali-led administration has maintained that it will not yield from its position to preserve the lopsided deal due to its respect for the sanctity of contract.

The government has also said that going through with renegotiation would place the country on the precipice of economic devastation since there is a rigid stability clause in the agreement. That clause insulates ExxonMobil and its partners from any new terms or laws that would force it to give the State more fiscal benefits. If the government were to impose any new terms, the clause allows for Exxon to be duly compensated.

Though it holds steady on being against renegotiation for the Stabroek Block, recent statements by Vice President Dr. Bharrat Jagdeo on how the administration intends to deal with the Exxon operated Kaieteur and Canje blocks leaves one to wonder if the “sanctity of contract” position is a convenient excuse.

Jagdeo recently stated that Exxon’s Kaieteur and Canje blocks will have to subscribe to the new model fiscal terms if discoveries are made there. Those terms include the payment of a 10 percent royalty. What is critical for readers to note is that the Canje and Kaieteur block contracts both have the same oppressive stability clause and other lopsided terms.

Also, just as with Stabroek, the Canje and Kaieteur block contracts restrict the government from bringing Exxon to the negotiation table. Only Exxon is permitted under the agreement to bring the government to the table, to seek renegotiated provisions. If the government unilaterally amends the terms of the contracts in a manner that increases the economic burdens of the contractor, it would have to repay whatever they have lost.

If the matter were to be brought to Court, just as with Stabroek, Exxon and all its partners would recover the costs of their top notch law firms from cost oil, ultimately reducing profit oil revenues to Guyana.

So, what will stop Exxon from rejecting the new terms, just as the government claims it could do with the Stabroek PSA? An equally important question is how is the government able to violate the sanctity of contract principle for the Kaieteur and Canje blocks but not for Stabroek?

The terms in the Canje and Kaieteur petroleum agreements can be argued to be worse than those in the Stabroek PSA. Like Stabroek, Canje and Kaieteur offer the same effective waivers of all taxes, with a 75% cost recovery ceiling. Kaieteur splits profits 50/50, just like Stabroek. Canje differs, in that its profit split is on a sliding scale from 50% to 60% based on the levels of oil production. While Stabroek has a 2% royalty rate on petroleum produced and sold, Canje and Kaieteur charge only 1% royalty.

In the new model PSA, government has proposed 10% royalty, a 65% cost recovery ceiling, a 50/50 profit share, and a 10% corporate tax. The contract is supposed to be in a consultation phase, and should be released to the public in its entirety soon.

Block, Canje, Contract, Kaieteur, SANCTITY

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VP Jagdeo breaks SANCTITY OF CONTRACT with Exxon for Kaieteur and Canje blocks but refuses to do same for Stabroek block

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VP Jagdeo breaks SANCTITY OF CONTRACT with Exxon for Kaieteur and Canje blocks but refuses to do same for Stabroek block

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