The Private Sector Commission (PSC) yesterday said much more should have been done to incorporate local content and greater benefits for businesses here in the petroleum agreement between the government and ExxonMobil’s subsidiary.
In a preliminary statement on the agreement, which government finally released two weeks ago after keeping it secret for more than a year, the PSC also called for world class negotiators for future contracts.
It argued that though the cost of energy is currently the primary limitation to the expansion of business and growth in Guyana, there is nothing in the agreement to indicate that Guyana owning such large oil reserves would translate into reduction of the costs of energy to Guyanese.
“The business sector and general populace of Guyana deserve to benefit directly from the abundance of oil at its disposal and we look forward to seeing future Agreements for other blocks offshore include provisions with greater benefits to Guyana and its people,” the PSC said, before adding that it expects that for all other blocks offshore, the Agreements with operators/contractors will consist of provisions that will ensure Guyana receives more royalty, rents, training and development for Guyanese and better local benefits for all Guyanese.
The commission has suggested that this could be achieved through the enlisting of the services of “world class negotiators,” who can competently negotiate with major oil companies.
In the statement the PSC contended that failures in addressing the ring-fencing provisions mean that Guyana will be left to bear the costs of unsuccessful exploration.
The issue of ring-fencing was raised in the findings of an expert team from the Fiscal Affairs Department (FAD) of the International Monetary Fund (IMF).
According to the FAD team, ring-fencing in a Production Sharing Agreement (PSA) framework can limit the allocation of income and expenditure for profit oil sharing and tax purposes since with such a ring fence, the scope to consolidate income and expenditure across multiple fields is circumscribed.
The IMF report noted that in the PSA framework in Guyana, the sharing of profit oil between the contractors and the government is done on a field by field basis.
While this in principle ensures that the government revenue from the contract area is calculated based on each field separately, it is undone by the PSA framework also allowing the contractor to allocate cost oil to any field within the contract area, the IMF report had said.
Yesterday the PSC also drew attention to the fact that given the early stage of development, Guyana does not have the right to re-negotiate the terms of the Agreement. This is specified in the Stability of Agreement Clause of the contract.
“We are concerned since this Agreement encompasses the entire Stabroek Block, an area of 6.6 million Acres of water with 3.2 billion barrel of equivalent oil (BOE) so far. With the projected massive oil discoveries the Commission believes that there should be increased flexibility given to the Government of Guyana, to ensure a fair and equitable deal on both sides,” the statement said.
The PSC’s statement was released one day after Government and ExxonMobil announced a major oil discovery at the Ranger-1 well in the Stabroek Block, which is being called the largest single find since it began exploration offshore Guyana.
The finding of more than 230-ft of high-quality, oil bearing carbonate reservoir at the well is also the sixth discovery made by the company here since 2015, following previous “world-class discoveries” at the Liza, Payara, Snoek, Liza Deep and Turbot wells, which are estimated to total more than 3.2 billion recoverable oil-equivalent barrels.
“This latest success operating in Guyana’s significant water depths illustrates our ultra-deepwater and carbonate exploration capabilities,” said Steve Greenlee, president of ExxonMobil Exploration Company, in a statement after the discovery. “This discovery proves a new play concept for the 6.6 million acre Stabroek Block, and adds further value to our growing Guyana portfolio.”