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Govt. pushing ahead with gas strategy despite no clear plan to prevent more multi-billion dollar losses to Exxon
Kaieteur News – The government is moving forward with the finalization of a national gas strategy, even though it is yet to outline how it will prevent even more revenue loss as well as control over the nation’s gas resources to ExxonMobil. This concern has to do with the contentious Stabroek Block Production Sharing Agreement (PSA), known for its bias towards international oil companies ExxonMobil, Hess, and CNOOC.
The government’s focus on gas renews the conversation about the skewed terms of the Stabroek Block PSA because, even though the generic fiscal terms of the deal are lopsided, the terms on gas have the potential to make the situation even worse for Guyana. The contract’s current conditions, including a 2% royalty rate, a 75% cap on cost recovery, a 50-50 profit-sharing model, and effective tax waivers, have faced extensive criticism. The contract also has a stability clause that substantially restricts Guyana from securing a better financial deal.
Turning to gas, the contract’s non-associated gas clause grants ExxonMobil and its partners a potential avenue to negotiate even more favourable terms if they believe that is what the situation requires.
The contract states, “When the Contractor has provided Notice to the Minister… of a Non-Associated Gas discovery within the Contract Area that is of potential commercial interest, the Contractor shall inform the Minister whether the Contractor believes such discovery is potentially commercial under the current Agreement terms, or if Contractor requires revised fiscal terms or contract terms under the agreement to proceed with a Development Plan.”
The Stabroek Block
“The Contractor shall propose revisions to the Agreement to the Minister as the basis for entering into good faith negotiations on revised terms that can provide the Contractor with a commercially competitive return on investment for development of the Non-Associated Gas discovery.”
In other words, this provision gives Exxon the power to bring the government back to the negotiating table to secure more benefits on gas exploitation that are in the company’s favour. Unlike the Stabilization clause in the contract, this leaves no room for the government to be in agreement or not. It also shows that the contract makes room for renegotiation, but only if it benefits the contractor.
These potential gas deal renegotiations for Exxon may come at a time when the fairness of the existing fiscal terms is already under intense scrutiny and criticism, raising concerns about exacerbating the inequity of the contract.
The government is actively working on its first national gas strategy, recognizing the immense potential of its offshore gas reserves. ExxonMobil, after lining up a series of oil projects, is beginning to turn its attention to gas resources. This shift in focus is evidenced by ExxonMobil’s recent drilling at the Haimara-2 appraisal well, following the discovery of a gas field at Haimara-1 in 2019.
There is an estimated 17 trillion cubic feet of natural gas in the Stabroek Block. Vice President Dr. Bharrat Jagdeo has cautioned that if ExxonMobil does not actively monetize these gas reserves, Guyana would request that the blocks be relinquished to the government, so it can explore partnerships with other interested companies.
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- ExxonMobil, multi-billion dollar, Stabroek Block, Stabroek block production sharing agreement (PSA), Strategy
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