Guyana’s oil contract “very fair” – Exxon’s Vice President

Dec 07, 2024 News

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Kaieteur News- President of ExxonMobil Upstream Company and Vice President of Exxon Mobil Corporation, Liam Mallon has described Guyana’s Production Sharing Agreement (PSA) with the company as “very fair”.

During an interview this week with Hart Energy, Mallon who is expected to resign with effect from February 1, 2025, gave an overview of the massive discovery in Guyana, followed by its successful string of start-up projects.

He explained, “It was not that it almost didn’t happen. If you go back and trace the history of Guyana, this is the nature of exploration to some extent. As a basin, several wells were drilled in Guyana through the ’60s, ’70s. The proposition was that there were hydrocarbons there because there was a heavy oil field which still produces today in Suriname.”

Mallon said that while geologists and geoscientists were certain of a source rock, they just did not know where. The assumption was the resource was in the shallow water, but exploration there was not favourable.

According to him, “Then the hypothesis that our team came up in the early part of the 2000s was that it’s potentially out in the deeper water. Of course, technology at that time wasn’t where it is today. Imaging wasn’t where it is today. And then the country, the activity was under force majeure for quite some time.”

The process to drill the wells was both “expensive and high risk” Mallon recalled. He said that while there is chatter about the oil deal government signed onto, the contract can be considered fair, taking the risk into account.

“I think it was kind of a unique proposition hypothesis and the only way to test it was to go drill it. And these were expensive wells to drill and high risk. And people talk about the [government] contract. The contract is very fair relative to the risk that was taken. I think that’s widely acknowledged,” Exxon’s Vice President noted.

While Mallon said it is widely acknowledged that the oil deal is fair, this statement is perhaps only limited to the opinion of ExxonMobil. Guyanese politicians have often frowned upon the deal, labelling it the worst contract ever signed.

While strong statements have been made against the deal, leaders are reluctant to renegotiate the terms of the contract with Exxon, adamant that this could affect future investments in the oil rich Stabroek Block and breach the ‘sanctity of contracts’ principle.

 

“An incredible success story”

For Mallon, who has been with Exxon since the early days of exploration in Guyana, the rate of development taking place is unlike anything he has seen in the history of the deep water industry.

He noted, “I’ve been with this from the very start. I was in Georgetown (capital of Guyana) in 2015, very early. And the pace at which we’ve developed this, we’ve gone from zero to now, today, greater than 600,000 barrels per day (bpd), and we’ll grow to the 1.2 million bpd capacity we talked about by 2027 in a very short period of time, at a pace that we’ve never seen in the deep water industry.”

The Vice President said this is tied to the capabilities and partnerships, which is nothing less than “high quality”.

Additionally, he pointed out, “The rocks are very high quality, the subsurface is very good, but we’ve also done an incredible amount of things with our technologies to improve it. These boats (FPSOs), for example, let’s say they’re designed for 600,000 bpd, we’re producing (almost) 100,000 bpd more today. We’re optimizing debottlenecking, finding ways to do more than we thought we could do. And that just continues. It’s an incredible success story.”

Terms of Guyana’s oil contract

In accordance with the provisions of the 2016 PSA, Exxon can deduct up to 75% of Guyana’s oil produced each month to recover its investment in the block. The remaining 25% is shared equally with Guyana as profits. The country also receives one of the lowest royalty rates known to the sector, a paltry 2% which is paid quarterly.

In the meantime, a key provision not included in the contract allows Exxon to shorten Guyana’s share of profits by investing the earnings to develop projects yet to start-up, and even finance the company’s exploration activities.

To date, Guyana would have been receiving a greater profit share with a ring-fencing provision, since the cost of the three projects in operation have been paid off. Despite being urged to implement a ring-fencing provision to ensure the country benefits from the current high oil prices, the government is unwilling to apply this mechanism.

(Guyana’s oil contract “very fair” – Exxon’s Vice President)

(Guyana’s oil contract)

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• Contract, ExxonMobil, fair, Mallon, oil

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