Jagdeo blames no ring-fencing for Guyana’s failure to pay off US$6 billion Liza 2 costs, but still refuses to include provision for other oil projects

Aug 27, 2023 ExxonMobil, News, Oil & Gas

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Kaieteur News – Despite being warned by multiple international experts to ring-fence its oil projects, the Government of Guyana (GoG) has refused to include such a provision in the Permits being granted to oil major, ExxonMobil.

The company, through its subsidiary, Esso Exploration and Production Guyana Limited (EEPGL), operates Guyana’s lucrative 26,800 square kilometers Stabroek Block. Through the Production Sharing Agreement (PSA) inked with the GoG in 2016, the company is allowed to deduct 75 percent of the monthly revenue towards the repayment of costs for the offshore deepwater projects. This process is referred to as ‘cost recovery’.

Even before oil started flowing through the production lines, Guyana was advised by the International Monetary Fund (IMF), Chatham House, World Bank and the United Nations Development Programme (UNDP) to include a ring-fencing provision to ensure the country benefits from its oil resource early on.

A ring-fencing provision would prevent oil companies from using revenue generated from a production field to offset costs in another project. In the absence of such a provision, ExxonMobil have been using the proceeds from the Liza One and Liza Two projects, currently producing about 400,000 barrels of oil per day, to pay for costs related to other Stabroek Block projects. This has resulted in Guyana failing to pay off the Liza Two project costs, pegged at US$6 billion, even though ExxonMobil recovered a whopping US$7.4 billion in expenses last year alone.

Vice President (VP) Bharrat Jagdeo was asked by Kaieteur News on Thursday during his press conference whether the cost of the Liza Two project has been recovered by Exxon, when he begged that one understands the impact of no ring-fencing.

The Vice President explained, “Because of no ring-fencing several projects are being financed from the proceeds; so because several projects are being financed (simultaneously), it affects, what would have been an early repayment (on one project).”

Jagdeo went on to note if Guyana had a ring-fencing provision included in the PSA, Guyana could have already been benefitting from a 50/50 profit split from the Liza One and Two developments. In this regard, he pointed out that with each new project approved, the debt is piled onto and is repaid from the producing developments.

He said, “It delays the repayment of all of these expenditure. It delays it. It just shifts it forward so that is why it is a dynamic thing. It’s not like static and that is what I am hoping that people would understand that in these, like financial things because of the lack of ring-fencing in this case, in this particular case it’s difficult to assign to say oh, all of the money has gone there. Most of the money is going into financing the new projects now, coming from revenue.”

In February of this year, ExxonMobil Guyana revealed that the Liza One project, that carries a price tag of about US$4 billion. 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.

Jagdeo has been reluctant to publish the cost recovery statements for the oil company to show what costs have been repaid to date. As a result, it is still unclear how much of the Liza Two expenses have been cleared thus far.

“Renegotiate those contracts”

A passionate and almost angry Bharrat Jagdeo while functioning as Leader of the Opposition, just over three years ago, said in an interview that the then A Partnership for National Unity + Alliance For Change (APNU+AFC) Coalition government “sold” the country to “foreigners” because that administration failed to include ring-fencing to shore up profits from the 2016 PSA with Exxon.

At that time, Jagdeo assured that when the People’s Progressive Party Civic (PPP/C) returned to office, this would be a priority when the contract is renegotiated.

“They sold us out to the foreigners. The oil companies, every time there is a find out there, our people should be sad because nothing comes our way. We are gonna renegotiate those contracts because that’s not what we had in mind,” Jagdeo said.

He added, “When we were in the early days, we were coaxing the people (ExxonMobil) to go along. They (Coalition) came into office – three billion barrels of proven reserves and they gave up zero royalties, no taxes, no ring-fencing.”

Soon after taking office in 2020, the now Vice President (VP) has not only changed his tune but also his tone when it comes to the renegotiation of the Exxon contract and securing greater benefits for Guyanese.

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• cost, expenses, ExxonMobil, oil, Recovered, ring-fencing

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