‘No renegotiation of contract, Guyana has a good deal’- Routledge tells Financial Times

Nov 08, 2023 ExxonMobil, News, Oil & Gas

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Kaieteur News – ExxonMobil Guyana President, Alistair Routledge has defended the heavily criticized 2016 Production Sharing Agreement (PSA), it signed with Guyana for the lucrative Stabroek Block.

Former Minister of Natural Resources, Raphael Trotman, who served under the APNU + AFC Coalition government between 2015 and 2020, was the one who signed the deal in 2016 with Exxon. Industry experts as well as locals have labelled the deal as one benefitting Exxon and its partners Hess Corporation now Chevron and China’s CNOOC more than it does the country. In a recent Financial Times article, Tom Mitro, a senior fellow at Columbia University’s sustainable investment centre, and other experts argue that the PSA signed with Guyana in 2016 is unduly generous to Exxon.

However, in response Routledge defended the contract, saying the terms were competitive for a deepwater, frontier development that had attracted limited interest until the big recent discoveries. Just two companies – Hess and Cnooc – replied to 35 letters sent out by Exxon seeking partners when Shell pulled out of the consortium in 2014, he said. Routledge said returns to Guyana could exceed US$10 billion over its operations’ decades-long lifetime. There would be no renegotiation of the agreement as “contract sanctity is super important for investors”, he added.

“Everybody can cherry pick certain things but at the end of the day, it’s a collective economic return … for an economy [whose current] national budget is only around US$3.5 billion -US$4 billion. It is quite transformational,” he said.

STABROEK BLOCK

Exxon’s Guyana is operator and holds 45 percent interest in Guyana’s lucrative Stabroek Block, which is 6.6 million acres and has 11 billion of proven barrels of oil. Hess Guyana Exploration Ltd. Now Chevron holds 30 percent interest and CNOOC Petroleum Guyana Limited holds 25 percent interest. The 2016 deal gives Guyana an industry-low 2% royalty. Presently, Guyana shares revenue with ExxonMobil after the company deducts 75 percent towards the cost incurred to develop the resources in the Stabroek Block.

This arrangement, with the lack of ring-fencing, sees Guyana paying for projects that are yet to commence production activities. Each month bills from future producing developments are added to the list of expenses to be cost recovered by Exxon.

After the 75 percent is deducted to pay back the oil company, Guyana then shares 50/50 of the 25 percent remaining with Exxon as profits. This amounts to 12.5 percent of profits from the operations. Also, under the signed deal, Guyana has agreed to, under the taxation provisions, to pay ExxonMobil’s share of Corporation and Income Tax. As such it would mean, that Guyana foregoes each year, billions of US dollars. On top of this, documentation to this effect is then provided to the US based company allowing it to not have to pay any taxes in its home country for its earnings overseas.

The Stabroek Block generated a substantial US$9.8 billion last year, Guyana only received US$1.4 billion in profits and royalties, with Exxon taking US$7.4 billion to recover its investments. Also, the government’s Half-Year Report suggests that Guyana may earn lower revenue from the industry this year due to declining oil prices on the global market, resulting from reduced demand. Petroleum deposits for the year are now projected to total $1,629.3 million, US$2.4 million less than originally anticipated.

Moreover, Routledge told the Financial Times, “It is a jewel in ExxonMobil’s crown. It’s a significant resource. It fits very well with the execution capability of ExxonMobil.”

When asked for his thoughts on Chevron’s US$53 billion takeover of Hess, Routledge emphasized, “Clearly what’s attractive to Chevron is that ExxonMobil is operating at a very high level… From first discovery in 2015 to first oil in 2019. I mean, [it’s] just unheard of really to develop a new resource in a brand new basin with no existing infrastructure in that short a timeframe.”

Moreover, it was stated that Wall Street analysts have hailed the Exxon-led investment in Guyana as “the best oil deal in modern history.”

PRESIDENT ALI 

Guyana’s President Irfaan Ali during an interview with British Broadcasting Corporation (BBC) had reiterated his administration’s position to not renegotiate the lopsided Exxon deal, but admitted that the contract is one that benefits the oil major more than this country. President Ali said, “Well, I would say definitely, we did not have the best of deals, Exxon have a good deal signed by the last government.” Ali then highlighted that sanctity of contract is “very important” to his Government, adding, “and we can’t go back on that.” To this end, Long asked, “So there will be no renegotiating of the contract?”

“We cannot go back and renegotiate,” President Ali responded. He went on to state that while the Government of Guyana is unable to renegotiate the deal, they have embarked on several initiatives to reap more benefits for the country.

EXXON’S STORY OF SUCCESS ‘GUYANA’

Earlier this year, ExxonMobil Corporation’s Chief Executive Officer (CEO) Darren Woods, during a discussion on Tuesday at the annual S&P Global CERAWeek conference held in Houston, Texas, boasted about “the story of success” Guyana.

Woods was also proud to highlight the company’s rapid pace of development in the country. Exxon’s boss and S&P Global Vice Chairman, Daniel Yergin, had a discussion on future investment strategies in the energy sector, when Yergin stated, “So let me ask you, mega projects, you did mention Guyana. I mean that’s pretty incredible how fast that developed.”

To this, Woods responded, “Yes it is…Yeah I mean if you look at that it’s really a story of success, and I would also tell you that we are very focus as we grow that production.”

Speaking about Exxon success in Guyana, Woods shared that the company was able to move from first discovery to first oil within five years, beating industry record. “We brought that like from discovery to first production in five years which is not industry record is pretty close to it. When you think about what typically the timeframe (is), (it) typically (takes) the industry about 10 years,” Exxon’s CEO said.

He continued: “If you then look at what we have delivered since that timeframe, we are bringing in those ships [Floating production storage and offloading vessels] and that production ahead of schedule, we’ve beaten schedule for the two ships [Liza Destiny and Liza Unity] that we’ve got and the third one [Prosperity] that we are working on, that is expect to beat schedule.”

Woods bragged about ExxonMobil Guyana being able to run production, “at a higher level than we have anticipated when we made those investments and staying focused,” adding that the company is also focused on, “helping with reducing emissions.”

Exxon CEO also shared that the company is working on the US$2B Wales gas-to-energy project with the Government of Guyana (GoG) to bring gas onshore. He said, “We got a project that we are working on with the Government of Guyana to bring gas onshore to back out some of their higher emission intensity power to substitute that with gas. So we lower emissions and get better more reliable power to the people that’s a real win-win situation.”

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• Alistair Routledge, ExxonMobil Guyana President, Guyana’s President, Hess, Irfaan Ali

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