Jagdeo agrees that Suriname has better fiscal benefits in oil contract

Oct 05, 2024 News

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…says Govt. fixed 2016 oil deal with GTE, Local Content law

Jagdeo agrees that Suriname has better fiscal benefits in oil contract but maintains that government has fixed Guyana’s Lopsided 2016 oil deal with GTE project and Local content Law.

Kaieteur News – On October 1, 2024 Suriname announced that it has a Final Investment Decision (FID) to develop a production field in Block 58 offshore Suriname. The timeframe for the construction and installation, according to a release from Staatsolie, https://www.staatsolie.com/would take approximately four years. Suriname can expect first oil in 2028.

In a video clip, the Managing Director of the state-owned company Staatsolie, Annand Jagesar, compared the contracts of Guyana and Suriname during the announcement of the FID.

“Guyana, they have 2% royalty, and 50% profit split, no taxes, and here in Suriname, we have like 6.25 % royalty, profit split according to a certain formula, so the higher the oil price the better for Suriname, but the lower the oil price then the contractor gets protected and we have a stabilized tax rate of 36%,” Jagesar said adding, “So you can do the math and the deal is good but of course everybody has to survive in this partnership.”

On Thursday, Vice President Bharrat Jagdeo acknowledged that Suriname has better terms in their agreement than Guyana’s 2016 agreement. Jagdeo’s statement followed the publication of an article by Demerara Waves headlined, ‘Suriname boasts of better oil contract terms than Guyana’.

“I noticed Demerara Waves, Suriname boasts of better oil contract terms than Guyana. Not that anyone actually boasted about this… but it’s true that they have better terms than our 2016 agreement has and who is responsible for this again the APNU/AFC,” Jagdeo said.

Jagdeo compared Suriname’s royalty rates with that of the new Public Sharing Agreement (PSA) saying that, “So if you look at their royalty rate of 6.2% royalty, we have just put in our new PSA, a 10% royalty rate that’s the new condition but the agreement that they have today is better than the 2016 agreement and we pointed this out many times.”

It is important to note that the new PSA referred to has nothing to do with the country’s current deal with ExxonMobil and its partners Hess and CNOOC nor is it related to the lucrative Stabroek Block offshore Guyana.

The new PSA will govern the smaller blocks that were part of the recently concluded auction. Furthermore, there have been no exploration activities or discoveries in any of these blocks. Therefore, citizens should be aware that the Stabroek Block arrangement remains the same, Guyana will get 2% royalty and 50/50 profit sharing.

Jagdeo in laying blame on the former administration for the 2016 oil deal noting that his government fixed the deal by addressing the non-fiscal terms so that Guyanese can benefit more from the sector.

“We sought to fix this by getting more benefits from the contract through the Local Content Law, the Gas-to-Energy project so that we can claim other non-fiscal benefits from the contract and we have had Exxon agree with that from the time we got into office, but this is great and I am happy for Suriname, very happy for them they have worked very hard at this,” he reasoned.

Meanwhile, in a statement released by the company Jagesar stated that, “The FID is a historic milestone in Suriname’s oil and gas industry. What seemed like a distant dream is becoming reality. This will be the largest investment ever in our country; one in which Suriname will receive the largest share of the ‘take’. Staatsolie will supervise this. This new opportunity comes with a shared obligation to ensure that Suriname will benefit optimally from the incomes from offshore oil. These will have to be put in use for the long-term prosperity of all Surinamese. This can be achieved through good governance, transparency, zero corruption and the establishment and strengthening of institutions that must guarantee that this income benefits the development of the entire Surinamese society.”

Guyana’s leaders are so determined to grant extremely generous fiscal terms to oil companies, that they have agreed to forfeit billions of United States dollars.
Two of those generous concessions include an agreement to pay oil companies uncapped interest rates on loans they (the oil companies) take to fund petroleum operations offshore Guyana and an agreement to repay these companies for “pre-contract costs.”

Suriname has done a much better job of securing the value in the prolific basin that these two countries share. Suriname’s model Production Sharing Contract (PSC) explicitly states that pre-contract costs and interests on loans are not recoverable.

In the Accounting Procedure of the Suriname model PSC, it is stated that “costs incurred before the Signing Date including the purchase of seismic data” and “Interest incurred on loans raised by the Contractor” do not qualify for cost recovery. Suriname’s Staatsolie has described its PSC is world-class.

Guyana’s hefty pre-contract costs

There are pre-contract costs under several agreements with oil companies operating offshore Guyana. The heftiest pre-contract cost is for the Stabroek Block agreement, including costs owed to ExxonMobil.

Section 3 of the Accounting Procedure of the Stabroek Block agreement lists many expenses recoverable by the contractor. Included in these are “all such costs incurred under the 1999 Petroleum Agreement between January 1, 2016 and the Effective Date which shall be provided to the Minister on or before October 31, 2016 and such number agreed on or before April 30, 2017.”

This includes the US$460M stated in the contract and an additional amount not made public by the Government. International lawyer, Melinda Janki, estimated that the additional cost would take the total pre-contract cost to US$960M.

These costs include “contract costs, exploration costs, operating costs, service costs and general and administrative costs and annual overhead charge as those terms are defined in the 1999 Petroleum Agreement,” according to the 2016 contract.

There are pre-contract costs under several other contracts. Unlike the Stabroek Block agreement, a number of these agreements don’t even define pre-contract costs, leaving the public to wonder what it is paying oil companies millions of dollars for.

(Jagdeo agrees that Suriname has better fiscal benefits in oil contract)

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• fiscal benefits, Guyana, Managing Director Staatsolie Annand Jagesar, oil contract, Suriname, Vice President Bharrat Jagdeo

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