H@rd Truths by GHK Lall – Repsol: why talks about renewal? 

Sep 29, 2023 Features / Columnists, News, The GHK Lall Column

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Kaieteur News – It was good to hear from Vice President Jagdeo that if the license of the Kanuku Block is renewed, Repsol would not be able to recover the US$500 million pre-contract costs.  In other words, with a new license (if extended), the clock starts fresh, with no baggage from the previous years.  It certainly sounds good on the face of it, and should stand in normal circumstances.

As the Vice President should know, the oil business is not spearheaded by choirboys pretending at being men.  The men running oil companies in the High Command, or those selected as country heads, are a breed apart.  Call them what pleases: oil outlaws, machinelike men, or oilfield generals, they are all those and more.  They are neither saintsnor holy men. They are men of blood and guts and iron.

The point I drive toward is that, should the Kanuku Block license be renewed and there is a pool of production to work with, then the Spanish oil conquistadores at Repsol would find some way to recover that US$500 million incurred under the previous contract. Using Vice President Jagdeo’s language, it is a ‘no brainer.’  For recovering its half billion American Repsol will, if it finds oil in commercial quantities.  See what I mean about not being choirboys or holy men.  Oil is a snake-eat-baby business, and the sooner that the glistening Vice President stop pretending that he doesn’t know this, the better he will do for Guyana.

I contend, therefore, that renewal of the Kanuku block license isn’t beneficial to Guyana.  The sticking point is that US$500 million pre-contract costs: somehow, Repsol is going to get it from Guyana once oil is found.  Know this about giant foreign oil companies: they are pretty swift in taking advantage of the territory. Repsol certainly showed it is no amateur with that US$500 million pre-contract cost that now dangles.

In his favor, Vice President Jagdeo made all the right sounds over this renewal.  These renewals are ‘not automatic’; it was the first clear, definitive effort he has given on anything involving oil.  The tantalizing question is whether Dr. Jagdeo would have found his voice to speak so authoritatively to Exxon.  But speak he did relative to Repsol’s application, and the Kanuku block renewal: “Should a policy decision be made that we will consider favourably their application for a new prospecting licence in that area, they would have to now comply with the new PSA, which is, one, the size of the block has to be reduced. Two, there would have to be a signing bonus. Three, all of the other conditions, including enhanced royalty, the new fiscal conditions, and every other condition of the new PSA would apply.” I amintrigued.  Where did this Jagdeo come from, since the one that all Guyana knows is timid, hesitant, frightened nervous around oil companies? Or is this some substitute pumped with vitamins, minerals, tonics, and the right stuff?  Attaboy Brother Barry! How I wish that he would speak in this same straight, unambiguous manner when Exxon is involved.

After absorbing all that the VP said on the Kanuku block renewal and the pending Repsol license, I recommend that the discussion over this renewal be tight, limited.  Especially when there is that US$500 million hovering.  First of all, that half billion American dollar is near to half of Guyana’s total oil income for a whole year, using recent deposits into the Natural Resources Fund.  Given this country’s needs, and its paltry take from the Exxon partnership, it would be financially imprudent to renew the license and absorb (by hook or crook) that unforgotten expense.  For absorb, this country will; Repsol will see to that somehow.  Then, after 10 years of mapping and exploring and studying in the Kanuku block, the probability of striking oil seems rather remote at this stage.

Now, the Vice President must be lauded for his position that the new Production Sharing Agreement (PSA) would apply in any renewal.  This sounds good, but with this man one never knows.  The reality, however, is that Repsol would have to make a world-class discovery to make this possibly economically feasible for Guyana. World-class means something akin to those that the ExxonMobil consortium have been making in the Stabroek block.  Further, I insert “possibly economically feasible” because there is still unfamiliarity with how this Spanish does its oil billings.  If it is anything that resembles ExxonMobil’s billing of expenses to Guyana, then this is not worth the conversation.  Let Repsol go home, and Guyana retain the blocks with a fresh set of oil companies, but without that US$500 million in the picture.  This alone is enough for Dr. B to gleam with oil wisdom: just look at the hard, heavy numbers.

New people would have to deal with the new PSA, just the same as Repsol, so that evens out.  The difference and showstopper is the US$500 million pre-contract costs: Guyana does not have to deal with that dead dog.  If this sounds callous, all Guyanese should remember that oil is not a business for saints; and secondly, look at how ExxonMobil, Guyana’s best friend of all time, shoved a stick into us with that horrible, one-sided 2016 contract.

(The views expressed in this article are those of the author and do not necessarily reflect the opinions and beliefs of this newspaper and its affiliates.)

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• GHK Lall, H@rd Truths, Kanuku block, renewal, Repsol

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