New PSA terms did not deter oil companies’ participation in auction - Jagdeo

New PSA terms did not deter oil companies’ participation in auction – Jagdeo

Oct 08, 2023 ExxonMobil, News, Oil & Gas

Kaieteur News – When the Government of Guyana (GoG) released the draft Production Sharing Agreements (PSAs) that would govern future commercial oil discoveries outside of the Stabroek Block, it triggered an almost immediate reaction for oil giant ExxonMobil to be subjected to the new terms to level the playing field.

Vice President, Bharrat Jagdeo

The American oil major entered into an agreement with the previous government that has been denounced by both sides of the political divide, civil society and even international experts. The deal, among other things, ties Guyana to a meager two percent royalty and 50 percent profit share, after Exxon deducts 75 percent of the monthly earnings to recoup its investments. It also lacks a ringfencing provision, meaning that the oil company and its Co-Venturers, Hess Corporation and CNOOC, can use Guyana’s oil to pay for projects that are yet to come on stream. In this manner, the country will continue to see measly returns while the oil companies enjoy the lion’s share of the nation’s wealth.

In the new PSAs, drafted under the People’s Progressive Party (PPP) regime, the administration sought to put measures in place to ensure the country enjoys more fiscal benefits more from its oil resource.

It therefore increased royalty from 2 to 10 percent and has capped cost recovery each month at 65 percent. The new agreements also require petroleum companies to pay their own taxes, unlike what obtains in the agreement with Exxon. In that contract, Guyana has agreed to pay the taxes of the Stabroek Block partners.

Despite calls from several sections of society for ExxonMobil to be subjected to these modified terms on future projects, the PPP administration has maintained that the company will not be required to dig into its pockets.

The Alliance For Change (AFC) Executive Member, Dr. Vincent Adams had pointed out that the Government is allowing “disadvantage” and “unfair treatment” to new investors, which could potentially include Guyanese, while the giant- ExxonMobil- would be allowed to enjoy the terms included in the existing lopsided deal that ensures massive profits to its shareholders.

Dr. Adams argued, “So here you are now with the leff-leff that these smaller contracts, including Guyanese who would be getting an opportunity to bid – they are going to be shut out. They are going to be basically priced out of the market with this gimmick…just to get away from the fundamental business and moral principles that is expected of every democratic society and country which is to have open, free and fair competition.”

ExxonMobil holds the licences to the country’s largest oil block – Stabroek- which measures approximately 26,800 square kilometres. Meanwhile the 14 oil blocks recently auctioned range between 1,000 to 3,000 square kilometres.

Despite the vast variation in the size of the blocks and the lofty terms extended to ExxonMobil, Vice President Bharrat Jagdeo has denied that the “unfair competition” could have resulted in Guyana attracting interest for only eight of the 14 offshore areas.

During his October 5, 2023 press conference at Freedom House, Robb Street, Georgetown, the VP said in response to a question from this newspaper, “That has nothing to do with it. It’s an old Glenn Lall issue.”

He said that while people often complain about the tax waivers granted to companies for instance, it does not match the risk being taken by the investors.

“A lot of people complain oh too much tax breaks to these investors but the same thing with the auction, it was so lucrative, why couldn’t he come up with a consortium or some group like one Guyanese has done to put in a bid and then they will make a lot of money too, but it doesn’t represent the way you do business and the risk,” the former President stated.

Guyana launched its initial bid round in December last year. Following the close of bid submissions on September 12, 2023, the National Procurement and Tender Administration Board (NPTAB) office revealed that six companies participated in the process, expressing interest in eight of the 14 blocks.

The companies that participated include: Total Energies EP Guyana B.V, Qatar Energy International E&P LLC, & Petronas E&P Overseas Ventures SDN BHD (Malaysia); Delcorp Inc – Guyana, Watad Energy, Arabian Drillers (Saudia Arabia); Exxon Mobil Guyana Limited, HESS New Ventures Exploration Limited, and CNOOC Petroleum Guyana Limited; Liberty Petroleum Corporation (USA)and , Cybele Energy Limited (Ghana); Sispro Inc. (Guyana), and lastly International Group Investment Inc. (Guyana), in joint venture with Montego Energy SA (London).

Previously, the Vice President said, “We are very pleased with the offers that we had from the bid round. The blocks that we did not receive bids for are D3, S1, S2, S6, S9, and S11. So that means some of the blocks are very competitive. A number of people are questioning whether this was a successful bid round or not but we are pleased with how the round has gone.”