Exxon set for oil production licence –govt

-100,000 barrels per day envisaged in 2020, royalty upped

Following reviews of the technical and environmental aspects of the Liza Project Development Plan that was submitted by Esso Exploration and Production (Guyana) Ltd (EEPGL) in December, 2017, the Government is expected to grant a production licence to ExxonMobil for production of petroleum to move ahead in 2020.

This was announced by the government last evening and comes following the huge offshore find by the US conglomerate in the Stabroek Block in 2015.

The Exxon Mobil drill rig Stena Carron which made the discovery (ExxonMobil photo)

The government said the licence will be granted whilst placing emphasis on Guyanese employment and training, the procurement of goods and services in Guyana, infrastructural soundness and the protection of the environment.

The government statement said that the Production Licence is required to be finalised before the developers make their Final Investment Decision for the project this month.

Extraction from the Liza field is expected to commence in 2020 at an initial rate of 100,000 barrels of crude per day in the first phase; with a Floating Production Storage and Offloading vessel providing the main infrastructural support for the project.

The statement said that Government and people of Guyana will receive a royalty of 2 percent on gross earnings and benefit from 50 percent of the profits from the sale of petroleum once production commences.

“The Ministry of Natural Resources and other Ministries and Agencies are actively pursuing a number of undertakings on the policy, legislative and infrastructure sides to ensure that the country is prepared for the coming oil production”, the statement added.

It said that citizens are encouraged to continue to provide their feedback and recommendations on the new sector when the Ministry’s outreaches visit their communities. Follow-ing consideration by the Cabinet the findings of the various reports will be released, the statement said.

There have been growing calls for the government to release the inception agreement with ExxonMobil.

The agreement with ExxonMobil which was signed by the People’s Progressive Party/Civic government back in 1999 and catered for a subsumed 1% per barrel-of-oil royalty was changed by the David Granger administration and will now take a hybrid format where royalties of 2% per barrel will feature.

“We made some adjustments with the Exxon contract,” Minister of Natural Resources Raphael Trotman told Stabroek News this week.

Further, he explained, “It was 1% paid for by the government. That was inherited. It is now 2% on the gross so we have made a substantial increase.”

Trotman reiterated that not many changes were made to the original contract since his government believed it was a fair agreement, after review and analysis of similar agreements by other countries, but the royalties aspect was changed.

“Bear in mind we inherited a contract, how do I put it, was not in any way in violation so government changed the terms to two percent of the gross as compared to one percent paid for by the government,” he said.

“So we received a range of views. In some countries the royalties are low if the take is high, as in this case, where 50% (of the profit share) is high. So it goes on a sliding scale. If you are getting a low take from the profits normally you get a high royalty. In this case you get an equal 50/ 50 and this was considered reasonable. There are higher (ratios), but this was considered reasonable and fair,” he added.

Back in March, at a brunch held to update the media on the sector, Trotman had said that minor changes were made to the contract but did not go into detail.

However, he explained that in addition to the belief that the contract was fairly negotiated government did not want to scare off current or future investors. “We didn’t want [it] to go abroad as Guyana is a place where it doesn’t respect the sanctity of contracts and we thought it best [to leave] what we had found. It was not altogether a bad contract… of course 1999 to the date of discovery in 2015 things would have changed,” he stated.

Trotman had pointed out that only  the “salient points” of the contract agreement between Guyana and ExxonMobil would  be made public because of security and other reasons and that “the terms remains essentially the same.”

“In so far as full disclosure at this point in time, I think government is of the view that full disclosure would not be to the best of the national benefit or national interest,” he said.

“Right now we are prepared to share the salient features of the contract, it is a 50/50 production share agreement…that means that Exxon and its partners will share 50 percent between themselves and Guyana will (have) 50 percent,” he added.

The Minister had explained that while he was not speaking for government, as to a reason why the full disclosure should not be made as yet, he will weigh in and advise President David Granger of the myriad reasons, including the security of the nation.

Given the many calls from persons and with Opposition Leader Bharrat Jagdeo also urging Trotman to make the contract public, the minister was asked if government would acquiesce.

Jagdeo said that Trotman making the contract public would eliminate any questions the public has about the deal which his party signed. “Trotman should make the contract public,” he said.

However, Trotman said in time but just not now. “Government remains advised. We take no pleasure in keeping it but most of the salient terms are known, but we remain under advice at this point and time. As soon as time and circumstances permit, of course we will make everything public,” he said.

And to Jagdeo, Trotman stated that if the Opposition Leader wanted the contract to be made public he could do so as he has copies. “They have copies so they can make it public. They are the ones that signed the contract so they can make it public if they want,” Trotman said.

This newspaper understands that the contract was signed by now deceased President Janet Jagan under the advice of her then Minister of Finance, Jagdeo.

Sources explained that the rationale to use the 1% subsumed royalty was a token payment because it is the law that royalties must be had.

To attract investors a system was used where an investor could get up 75% recovery of his investment costs and profits split equally. These exact numbers were negotiated with ExxonMobil where a 1% royalty would have been worked into the profit share.

However, with the new hybrid agreement, 2% royalties are guaranteed in their own right and will see the country getting revenue additional to its 50% profit share.

But Trotman said that the fiscal regime that government used to come to an agreement with ExxonMobil will not be the same for other companies as the situation has been changed given that there is certainty that the country has oil.

“Now that the basin has been derisked any new contract will we be looked at differently. We respect the sanctity of the contract we inherited but any new contract issued we are going to change the regime,” he said.

Trotman pointed out that even after cost recovery from the Liza well, Guyana would still have a sizeable sum to use towards its development, given the current oil prices.

The Stabroek Block is 6.6 million acres (26,800 square kilometers). Esso Exploration and Production Guyana Limited is the operator and holds a 45 percent interest in the Stabroek Block. Hess Guyana Exploration Ltd. holds a 30 percent interest and CNOOC Nexen Petroleum Guyana Limited holds a 25 percent interest.

Exxon has already submitted to government its plans for the Liza 1 field, scheduled to last for at least 30 years, and mapped out a systematic plan of its proposed offshore subsea systems, drilling, floating production operations and vessels to be used among other details. The plan speaks only to the Liza field and the technical aspects of how it would be ‘brought to life’.

Trotman has told this newspaper that a preliminary report to guide on Exxon’s Field Development plan was received and the final report is due this week.

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