Exxon says don’t compare Guyana’s contract terms with those of Suriname

Oct 15, 2024 News

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 …Guyana’s deal ‘very successful’

 

Kaieteur News – Country Manager for ExxonMobil Alistair Routlegde has said that the lopsided contract signed with this country is very successful and cautioned citizens not to compare Guyana’s oil terms with those of neighbouring Suriname.

He was at the time addressing the media last Wednesday at a news conference. Admitting that he has seen the comments made about Suriname’s deal in contrast to Guyana’s Routledge said that “everyone wants to say ours is better than yours, but you know at the end of the day all the elements that go into an agreement like this, a Production Sharing Agreement is put together at a point in time reflecting the risk that existed and in order to try and attract investment.”

He boasted that the current agreement has been very successful for Guyana as it has been able to attract investment into a basin where no one had made any discoveries and persons should take a step back to reminisce on that aspect. “It derisked the Suriname drilling because discoveries had been made in Guyana by the Stabroek Block coventurers, and we can always cherry-pick that somebody has higher royalty or lower royalty pays this tax or that tax, but it’s about the total amount of revenue that’s generated out of the petroleum agreement that’s really important to the country,” Routledge told reporters.

He explained that if sufficient investment is not attracted to a country, development cannot happen hence there would not be the same scale of revenue. “So you can have a larger percentage of a small number or you can have maybe a fair share of a much larger number and ultimately that’s more meaningful for the country. That’s where we have to just be careful about people just writing things, and wanting to cherry-pick certain numbers, I don’t think it’s helpful. Ultimately, the analysis that anybody should do which is the agreement delivering value for the country is it attracting the investment that is sought in order to develop the resource.”

On October 5^th 2024, the Kaieteur News reported that 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 announc

ement 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.”

Vice President Bharrat Jagdeo at a recent press conference 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’.

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.

 

Bad deal

Meanwhile, to underscore the lopsided nature of the ExxonMobil’s deal with Guyana for 2023, the Government of Guyana (GoG) had to pay the combined sum of $306 billion in income taxes for ExxonMobil Guyana Limited and its Stabroek Block partners, Hess and CNOOC according to the companies’ audited financial statements, while for the same period Guyana earned $336 billion from its oil.

This arrangement which saw the Government paying almost the same amount it earned from oil, in taxes for the oil companies last year is as a result of the 2016 Production Sharing Agreement (PSA) the previous Coalition Government signed with the U.S oil major. Exxon is the operator of the Stabroek Block, with 45% interest, Hess Guyana Exploration Ltd. holds 30% interest and China National Offshore Oil Corporation (CNOOC) Petroleum Guyana Limited holds 25% interest. Last year, the three companies earned $1.3 trillion in profits – entirely tax-free in Guyana. However, while Exxon, Hess, and CNOOC are not required to pay taxes, the 2016 oil contract provides for the taxes to be paid to the Guyana Revenue Authority (GRA) by the Government out of its share of profit oil.

According to the PSA, the Stabroek Block partners are allowed to recover 75% of the oil produced to recover their investment costs, the remaining 25% is considered profit, which is split between Guyana and the Stabroek Block consortium, giving each 12.5%. However, the consortium pays a 2% royalty from its share to Guyana. From its 14.5% Guyana then has to pay taxes for the oil companies.

Notably, the provision of the Stabroek Block contract which gives Exxon and its affiliates a tax-free ride in Guyana has attracted criticisms locally and internationally. The contract states in Article 15.1 that the Contractor (ExxonMobil Guyana Limited) as well as its affiliates shall not be subjected to tax, value-added tax, excise tax, duty, fee, charge, or impost in respect of income derived from petroleum operations, property held or transactions except as specified under the agreement.

It goes on to state in Article 15.4 that the sum equivalent to the taxes owed by the company will be paid by the Minister responsible for Petroleum to the Commissioner General of the GRA. It should be noted that the contract also allows for the issuing of a receipt to ExxonMobil, indicating that it has met the local tax requirements to avoid the burden of double taxation. Article 15.5 of the contract states, “Within one hundred and eighty (180) days following the end of each year of assessment, the Minister shall furnish to Contractor proper tax certificates in Contractor’s name from the Commissioner General, Guyana Revenue Authority evidencing the payment of the Contractor’s income tax under the Income Tax Act and corporation tax under the Corporation Tax Act. Such certificates shall state the amount of tax paid individually on behalf of Contractor or parties comprising the Contractor and other particulars customary for such certificates.”

The Irfaan Ali-led administration has explicitly stated that due to the sanctity of the contract, the 2016 PSA will remain in place, despite the deal being labeled as ‘lopsided’. In fact, last year, President Ali, during an interview with British Broadcasting Corporation (BBC) Senior Journalist Gideon Long, reiterated his administration’s position to not renegotiate the ‘lopsided’ Exxon deal. President Ali said, “Well, I would say definitely, we did not have the best of deals, Exxon had a good deal signed by the last government.” Ali then highlighted that the sanctity of contract is “very important” to his government, adding, “and we can’t go back on that.”

(Exxon says don’t compare Guyana’s contract terms with those of Suriname)

 

 

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• cherry pick., Exxon, Guyanese, oil deal, Stabroek Block

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