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Guyana was unprepared to negotiate with oil ‘power house’ – AMI Energy Director
Kaieteur News – When Guyana entered into the Production Sharing Agreement (PSA) with one of the world’s largest oil and gas companies, the country knew very little about the wealth discovered off its shores just months prior.
Co-Director of Energy Practice at America’s Market Intelligence (AMI), Arthur Deakin
Armed with little to no knowledge on the sector, the country settled for what is today described as the world’s worst oil contract.
Putting this into perspective during a recent panel discussion hosted by the Guyana Business Journal on ‘Infrastructure development and the emerging Guyanese oil and gas economy’ was Co- Director of Energy Practice at America’s Market Intelligence (AMI), Arthur Deakin.
AMI is a premier market intelligence, market research and consultancy for Latin America. It provides powerful insights for companies to succeed in a wide range of verticals in Latin America, including payments, healthcare, logistics, mining, energy, infrastructure, consumer goods and the industrial sector.
Deakin who has been tracking Guyana’s petroleum development believes the negotiation of the Exxon deal was rushed and Guyana was unprepared.
He said, “There’s no doubt, it was a rushed negotiation. Guyana was unprepared, as we mentioned Exxon is a powerhouse. They have the best lawyers, the best engineers and the best consultants working for them so it’s very hard to negotiate with a company like that.”
ExxonMobil announced the discovery of oil in Guyana in May 2015. In June the following year, it inked the PSA with the then Coalition government, which bound the administration to terms such a meager two percent royalty and a 12.5 percent profit share, while the Stabroek Block partners feast off a 87.5 percent share. Each month, the company deducts 75 percent of the revenue generated to cover its investments. The company pays no taxes and benefits from the lack of a ring-fencing provision.
Deakin in providing his thoughts recently on the deal said, “Exxon knew how good of an opportunity they were sitting on. I don’t think they would have left anytime soon… I think there definitely was room for improvement in that contract negotiation but in hind sight, it’s always easier but I think Guyana did the right thing in jumping on the train like you guys mentioned. At the end of the day, it’s connected to the climate change narrative as well as that window is closing.”
He referenced Suriname, pointing out that Total Energy is now hesitant to make the final investment decision (FID) to commence oil production activities.
According to him, “Guyana could have suffered a similar fate, I think Guyana is a little bit different because the resources are so good in terms of the light, sweet crude and there are still a lot of question marks surrounding Suriname but you never know if you don’t hop on that train the FID could have been pushed back and we could have been seeing a delay or an eventual kind of development at a much smaller scale.”
Guyanese at home and abroad have been protesting against the lopsided contract which they believe can still be renegotiated by the government today. The PSA includes a very strict Stabilization Clause which states at Article 32 that the deal cannot be changed unless agreed to by both parties. It also shields the Contractor from the passage of any new legislation that can potentially impact its fiscal benefits.
According to the agreement at Article 32.3: “If at any time after the signing of this agreement, there is a change in the laws of Guyana…and such change has a materially adverse effect on the economic benefits…the government shall promptly take any and all affirmative actions to restore the lost or impaired economic benefits to the contractor, so that the contractor receives the same economic benefit under the agreement that it would have received prior to the change in law…”
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