Guyana at risk of being left with stranded assets, could bare financial cost to shut down oil wells - Int’l Lawyer

Guyana at risk of being left with stranded assets, could bare financial cost to shut down oil wells – Int’l Lawyer

Jun 15, 2024 News

IEA prediction on over supply of oil….

Kaieteur News – The recent report by the International Energy Agency (IEA) that the demand for oil is expected to slow in the coming years with the global shift to cleaner energy thereby reducing oil prices will no doubt have a negative impact on Guyana’s burgeoning petroleum sector.

International Lawyer, Melinda Janki

International award-winning Attorney-at-Law, Melinda Janki, in a letter shared with Kaieteur News, highlighted the financial implications this can have on Guyana.

She reasoned, “It is very hard to give up the dream of oil wealth for Guyana but surely the time has come to face reality. The International Energy Agency predicts that overproduction will result in 8 billion barrels of oil a day that nobody wants.”

Consequently, Janki pointed out that the country could be left with stranded assets, including oil wells that will cost US-billions to safely shut down.

To this end, the Lawyer questioned the government’s business plan and existence of a model which demonstrates oil production is beneficial for Guyana’s economy or financially viable.

She was careful to also include the imminent gas sector in her analysis, arguing, “The proposed gas project has no financial justification and it will make Guyana dependent on ExxonMobil for electricity.”

In her earlier comments, the Attorney-at-Law noted that June 14, 2024 marked 25 years since former President, Janet Jagan signed an “over- generous” Petroleum Agreement with Esso Exploration and Production Guyana Limited- now ExxonMobil Guyana Limited (EMGL). Notably, a number of the provisions in that agreement made its way into the 2016 oil contract that now governs the oil-rich Stabroek Block, operated by Exxon.

Lacking however is a key clause to ensure the country benefits early on from the revenues generated from the sector. This provision, known as ring-fencing, would mandate each oil project to pay for itself, and would enable the country to benefit from more profits after the cost of the development has been cleared.

The contract stipulates that a whopping 75 percent of the monthly revenues are to be deducted as costs to repay the companies’ shareholders, while the remaining proceeds are split as profits equally with Guyana. In the absence of a ring-fencing provision, the companies have authority to use the income from producing oil projects to pay for other projects that are yet to commence producing oil.

The country was encouraged on multiple occasions by various organizations to ring-fence the projects to allow revenues to flow to the national coffers rather than fatten the pockets of the oil companies.

In three separate reports dated 2017, 2019 and 2019, the International Monetary Fund (IMF) stated: “This asymmetrical treatment of profit and cost oil will benefit the contractor at the expense of delaying government revenue.”

Meanwhile, the United Nations Development Programme (UNDP), along with another international expert, Chatham House and the World Bank called on Guyana to include a ring-fencing provision for each project.

Painting a more graphic picture in one his reports on Guyana was Director of Financial Analysis for the Institute for Energy Economics and Financial Analysis (IEEFA), Tom Sanzillo.

The IEEFA estimated that Guyana should receive upward of $6 billion annually by 2028 or sooner, however, the organization believes that due to all of the new costs, Guyana will be shortchanged until the 2030’s, if not longer.

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Assets, IEA, Janki, oil, ring-fencing, stranded

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