Five years on: Still no change to lopsided Exxon contract

Dec 19, 2024 News

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—company boasts Guyana’s developments most successful in the world

Kaieteur News-Today marks five years since ExxonMobil commenced offshore deep-water oil production here and although the US oil major continues to boast of record profits owing to the lopsided nature of the contract it secured, the Government of Guyana is yet to take steps to change the deal so that Guyanese can benefit more.

The government has also failed to implement key strategies for the prudent management of the resources and measures that allow for public oversight and accountability. ExxonMobil is the operator of the prolific Stabroek Block where more than 11 billion barrel of oil resources have been discovered since 2015. ExxonMobil Guyana operates the block in partnership with Hess and CNOOC. The agreement exempts the oil companies from paying taxes directly, with Guyana covering these costs, and allows the companies to recover up to 75% of their investments before the remaining 25% is split. Of this, Guyana receives 12.5%, in addition to a 2% royalty paid by the oil companies.

In a press release to mark the five-year anniversary, ExxonMobil Guyana said the five years of production is a significant achievement that underscores the transformative potential of the country’s growing energy sector.  “Since “first oil” at the offshore Liza Phase 1 project five years ago, Guyana has become the third largest per-capita oil producer in the world. The oil-and-gas sector has spurred tremendous economic growth in Guyana, helping to elevate the country to one of the fastest-growing economies globally,” the company said. ExxonMobil Guyana said it is dedicated to enhancing local capacity, and Guyanese businesses and workers play critical roles in its operations.

It noted that more than 6,000 Guyanese are currently employed in good-paying industry jobs, and ExxonMobil Guyana and its suppliers have invested more than GY $2 billion to procure goods and services from more than 1,700 local Guyanese businesses.  “We’re focused on capacity building, local content development, and environmental stewardship to ensure the benefits of Guyana’s oil-and-gas production reach every corner of the country,” ExxonMobil Guyana President, Alistair Routledge, said. “We’re grateful for the strong collaboration with our co-venturers, Hess and CNOOC, and with the Government of Guyana – all of whom have played crucial roles in responsibly developing Guyana’s natural resources.”

ExxonMobil Guyana’s deep-water developments are the most successful in the world. In five years, the company has started up three complex offshore mega-projects on schedule and on budget, while simultaneously advancing plans for five additional projects by the end of the decade. Production capacity in Guyana is expected to surpass 1.7 million barrels per day, with gross production growing to 1.3 million barrels per day, by 2030. “Working alongside our co-venturers and the Government, we are doing our part to foster a brighter future for all Guyanese,” said Routledge. “ExxonMobil Guyana proudly celebrates this five-year milestone as a shared achievement, and we look forward to continuing our successful collaboration with the people of Guyana.”

Meanwhile, 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.

Five 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 six projects. In the meantime, Guyana is dependent on the production statistics reported by the operator of the projects. In addition to the absence of a parent company guarantee in the event of an oil spill, and the lack of ring-fencing on the projects, concerns have been raised about the transparency in the management of the sector and the spending of the oil funds.

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, had pointed out before that the government has not been prioritising saving the funds generated from the industry like Norway but has instead, has 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, had also shared the view that the 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.”

(Five years on: Still no change to lopsided Exxon contract)

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• CNOOC, economic growth, ExxonMobil Guyana, Hess, lopsided Exxon contract, record profits

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