Duty-free provisions for ExxonMobil were same as for CGX

Guyana’s Petroleum Agreement with ExxonMobil grants the oil giant a multitude of tax concessions including the right to import duty-free, in excess of 300 pieces of “equipment and supplies required for Petroleum Operations”, these same concessions had been given the Canadian oil explorer, CGX under the updated agreement signed in 2013.

The 2013 agreement also provides for the reimbursement of the pre-contract cost, a sum of US$1 million which is far smaller than the more than US$46 million referenced in the ExxonMobil PSA.  However, ExxonMobil’s acreage and extent of operations is far larger than CGX’s.

Article 21 of both agreements allows the contractors and sub-contractors to “import free of duty, VAT or all or any other duties, taxes, levies or imposts, all equipment and supplies required for petroleum Operations.”

The Article goes on to list 11 items before adverting to a list of 333 in Annex D. The lists in both agreements appear identical though two pages of the alphabetized items are missing from the released copy of the 2016 agreement. The listing for items M-R have not been released.

Since its release the 2016 Contract has been the subject of sustained criticism with commentators questioning government’s reasoning and competence. Up to last Thursday, Opposition Leader and PPP General Secretary Bharrat Jagdeo called the ExxonMobil PSA a “horrible and incompetently negotiated” agreement.

According to Jagdeo the contract could be harmful to Guyana in the long run based on Articles addressing the stability of the agreement, relinquishment of areas and the extension of the agreement.

It has since become clear that the 2016 contract was modelled on a “template” developed under the PPP/C administration as these contentious articles are nearly identical to what appears in the 2013 CGX agreement.

It has been pointed out that ExxonMobil and partners’ PSA covers 26,806 sq. kilometers while CGX’s is 4, 000 sq. kilometers and former President Donald Ramotar who signed the 2013 agreement has argued that government should not have used this template as “Government was in a far better position in 2016 when it renegotiated for Exxon’s production licence because there was confirmation that oil was there.”

According to the 2013 agreement with CGX, government is guaranteed a 53% share of profit oil and profit gas, with 47% being retained by CGX. It also provides for a 1% subsumed royalty to be paid by the government. The ExxonMobil agreement, on the other hand, caters for a 2% royalty on gross production for Guyana, after which the two partners share profit from the profit oil 50/50.

Additionally, the CGX agreement does not cater for a signing bonus as is catered for in Article 33 of the ExxonMobil agreement nor is there a provision for a “bridging deed.”

This “bridging deed” is referenced in Article 30 of the Exxon PSA. Unlike the CGX agreement which came into effect on its signing date, Exxon’s agreement states at Article 30.1 that it shall enter into force and effect on the date in which the petroleum prospecting license in respect of the contract area is in full force and effect (“the effective date”). It adds that the 1999 petroleum agreement shall continue to be legally binding on the parties until it terminates or is terminated in accordance with its terms and the bridging deed.

This “Effective date” was further referenced in Annex C where it is explained that “costs incurred by the contractor in connection with petroleum operations carried out pursuant to the 1999 Petroleum Agreement  shall include 1. US$460,237,918 in respect of all such costs incurred under the 1999 Petroleum Agreement prior to yearend 2015 and 2. Such costs as are incurred under the 1999 Petroleum Agreement between January 1, 2016 and the effective date which shall be provided to the Minister on or before October 31, 2016 and such number agreed on or before April 30, 2017.”

It is further explained that Pre-Contract costs refer to general and administrative costs and annual overhead charge as those terms are defined in the 1999 Petroleum Agreement.

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