Guyana reaches 4th year of oil production

Dec 27, 2023 ExxonMobil, News, Oil & Gas

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– yet to independently verify daily number of barrels being produced

– still no signed parent company guarantee for oil spills

– no audit completed; reports withheld from public 

– interest rate on Exxon’s investments still secret

– no transparency on use of NRF

Kaieteur News – Guyana on December 20, 2023, commemorated its fourth successful year of offshore deep water oil production. ExxonMobil is the operator of the prolific Stabroek Block where more than 11 billion barrel of oil resources have been discovered since 2015.

Although production activities commenced just over four years ago, the government of Guyana is yet to implement key strategies for the prudent management of the resources and measures that allow for public oversight and accountability.

Guyanese have been protesting for changes to the abrasive terms of the contract signed with Exxon and Co-Venturers Hess and CNOOC, however, even without bringing the companies back to the negotiating table, government can implement measures that allow greater governance of the sector which is now the key driver of this country’s economy.

No meters to verify production rates

Four years after commencing production activities on the country’s first Floating Production Storage and Offloading (FPSO) vessel Guyana has not implemented systems to verify the daily number of barrels being produced by ExxonMobil.

The country has not only started up two more FPSOs without independent meters to verify production but has also to date sanctioned a total of five projects, with a sixth currently pending approval.

In the meantime, Guyana is dependent on the production statistics reported by the operator of the projects.

No signed parent company guarantee for oil spills

Another major gap in the regulatory aspect of the sector is the lack of a signed parent company guarantee to protect the country from bearing the financial burdens of an oil spill.

With an already meagre share of profits from the rapidly developing sector, Guyana can be left to foot the costs of an oil spill that occurs in the Stabroek Block. A spill can affect more than 10 Caribbean countries; however, the country only has a US$600 million insurance and a US$2 billion guarantee from ExxonMobil, which experts say would not be sufficient to clean up a potentially massive spill.

Two Guyanese had taken the Environmental Protection Agency (EPA) to Court for failing to secure a signed guarantee from the parent company of ExxonMobil Guyana Limited (EMGL)- formerly Esso Exploration and Production Guyana Limited (EEPGL).

The Court on May 3, 2023, ordered the oil company to provide the signed guarantee to cover costs above the limited insurance, but that ruling has been appealed and is ongoing before the Court. In the meantime, EMGL has reportedly lodged a US$2B guarantee; requests for the document to be made public have been repeatedly ignored by policymakers.

No audit completed; reports withheld from public

Since oil was found by Guyana in 2015, only two audits of Exxon’s expenses have commenced. Both processes have not been completed to the disappointment Chief Policy maker for the sector, Vice President Bharrat Jagdeo.

He has repeatedly expressed discontent with the lengthy duration of the review process but maintains that the technical analysis by the Guyana Revenue Authority (GRA) must not be compromised.

Back in April this year, Jagdeo said, “The criticism about the length of time it is taking is fair, but this audit is being done between GRA and the Ministry of Natural Resources with a minimum of 20 technical staff (overlooking the process) …”

The first audit was conducted by a British firm, IHS-Markit. The contract was awarded by the Coalition government in September 2019 for the company to review some US$1.6 billion in costs incurred by Exxon during the period 1999 to 2017.

A second audit contract was awarded by the incumbent administration in May 2022 for a local consortium, VHE supported by an overseas company, to undertake a US$7.3B review of the oil company’s expenses racked up between 2018 and 2020.

There has been public outcry since both audit reports, though handed over to government have not been shared publicly. The first report was leaked rather than officially shared through government channels. The second report however remains hidden from the public.

Interest rate on Exxon’s equity still secret

ExxonMobil for the past four years has been using Guyana’s oil to repay itself and co-venturers for its equity contribution or investments into the development of the Stabroek Block resources.

These investments, as rightfully pointed out by VP Jagdeo attracts an interest rate. Be that as it may, the chief policy maker for the sector has outrightly refused to disclose the cost of financing for the projects.

At a press conference in June this year, he explained, “Regardless of whether you make the financing in the form of a loan or equity you have to get a rate return. There is a cost of capital and that is how it is”.

This newspaper in a follow up question to the former Head of State’s remarks queried whether there was a standard rate Guyana is paying. The subject of a standard rate is particularly significant, given that Guyana has already been warned by the International Monetary Fund (IMF) that the country could lose massive revenue by failing to cap the interest rates on the investments for its oil projects.

The IMF said it is an industry norm that the government of the day disallows interests from being recovered on loans. Even if this is allowed, the administration sets a cap or limit to prevent the full interest amount from being recovered. The IMF pointed out that Guyana not only allows the recovery of the interest but also sets no cap.

However, in response to the specific question the former President told this newspaper, “We are not paying anything. The Government of Guyana is not paying anything because they have to raise the financing using the best efforts; the cheapest cost of financing that is what they are supposed to do as a company, so this is what can be analyzed even when you look at the cost bank.”

Before further questions could be asked, Jagdeo requested that the press conference “move on”.

No transparency on use of oil money

The National Assembly in December 2021 passed a Natural Resources Fund Act to govern the revenue earned from the petroleum industry. It earmarks specific guidelines for the use of the funds.  However, there has been no indication from government as to a single project financed from this revenue stream to date.

The first withdrawal from the account was made in May 2022. Parliamentary approval was granted for the sum of US$607.6 million to be transferred during the fiscal year 2022 and another US$1.002 billion in 2023.

Section 16.2 of the NRF Act explains that “All withdrawals from the Fund shall be deposited into the Consolidated Fund and shall be used only to finance – (a) national development priorities including any initiative aimed at realizing an inclusive green economy; and (b) essential projects that are directly related to ameliorating the effect of a major natural disaster.”

Government has not identified what are the “national development priorities” being funded by the oil revenue. The country is therefore in the dark regarding the use of the funds.

With little transparency regarding the use of Guyana’s oil wealth, International Financial Analysts worry that the revenue may not be used to develop the country and improve the lives of its poor citizens.

For instance, Director of Financial Analysis at the Institute for Energy Economics and Financial Analysis (IEEFA), Tom Sanzillo recently pointed out that the government has not been prioritising saving the funds generated from the industry like Norway but has instead embarked on a massive infrastructural and energy development scheme which may very well benefit its partner, ExxonMobil more than the citizens in the country.

He reasoned, “It may work to Exxon’s benefit to put in new roads, it may be Exxon’s benefit to build a new gas plant but they don’t need that kind of electricity system in Guyana and who knows if they actually need the roads that are being built because there is no public process so what you have is a plan and the plan is to use the money to keep the existing political structure in power and that’s what is going to be done.”

Meanwhile, Director of Energy at Americas Market Intelligence, Arthur Deakin, also shared the view that government lacks a clear structure on how the resources from this sector will be used to transform the lives of Guyanese.

He noted that Guyana’s oil sector has been moving at one of the fastest paces known in the industry; however, when it comes to translating that wealth to the population, this has been taking some time. In fact, the specialist pointed out that for the wealth to benefit the population, it would require structural planning by the administration.

To this end, Deakin said, “The government lacks a clear vision, a clear plan on how it’s gonna spend the money it’s receiving from the oil revenue, so I think there is a lot of room for improvement.”

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• barrels, guarantee, interest rate, oil, production, verify

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