Minister of Business Dominic Gaskin yesterday fired away at critics of the Production Sharing Agreement signed with ExxonMobil and its partners urging them to stop the rhetoric and use facts in their arguments which would show the country got a “decent deal”.
“As far as the contract is concerned, the fact that a handful of people have been repeating on a daily basis that this contract is bad for Guyana and that we’re getting chicken feed does not make these statements true,” he told an oil and gas conference hosted by the Private Sector Commission at Duke Lodge in Kingston.
“The Government of Guyana will receive in the first year of oil production 2% of the gross value and 50% of profit oil. Based on the production of 100,000 barrels per day and at today’s oil price of about US$60 per barrel, this amounts to in excess of US$300M in government revenues in the first year. That’s not chicken feed,” he added.
He compared the revenues that the oil and gas sector would bring in to Guyana’s gold sector saying that the country’s current export earner will pale compared to the returns from oil and gas.
“Let’s compare this with what is earned from the gold industry. And I’m not knocking gold, I like gold, but gold is Guyana’s biggest export earner by far and Guyana has been exporting gold for about 150 years. The last eight years have been the best years ever for gold production in Guyana both in terms of the amount of gold produced and the value of gold produced and exported and also the value of royalties and taxes collected by government. Yet the government has collected just over US$300M in royalties and taxes from all the gold produced in Guyana over the last eight years. In the first year of oil production the Government of Guyana will earn about the same that it has earned from the last eight years of gold production. That can’t be chicken feed,” he posited.
“The gold produced over the last eight years from which the government would have earned this US$300M would have been sold for approximately US$5B. For a similar value of oil under this so-called chicken feed oil contract the government would have earned around US$700M. Yet I’ve not heard anyone complain about Government’s share of gold revenues, and our gold is a valuable, non-renewable natural resource just like our oil. By 2022 when the second phase of development starts to produce oil, Government revenues will increase to approximately US$800M per year. So for anyone to assert that our government is selling out and giving away our oil is just plain nonsense,” he added.
Gaskin said that while he welcomes constructive criticisms, comparisons made to other countries just cannot hold since some countries have not only different fiscal regimes but that logistical and other factors were vastly different.
The Minister of Business said that he could not blame the People’s Progressive Party/Civic (PPP/C) government for the contract it signed back in 1999 because he understands that being a frontier country like Guyana an attractive package would have had to be offered to get investors.
“Could we have gotten more? You can always get more. You can also get less. But the fact remains that you can’t just start off with no industry and no proven reserves and want to play hard ball with investors who have years of experience in the field and who can easily take their business elsewhere without any major consequences. I am spending some time on this, not because I’m trying to tell you that this is the best contract in the world. Of course there’s room for improvement. But you need to know that there is nothing ridiculous or lop-sided about this contract,” he said.
“Because if you buy into the propaganda and become distracted by the negativity, you are not likely to prepare yourself for the transformation that oil production can bring to our country. I believe this is a decent deal and I say this not just as a government Minister but as a proud Guyanese citizen. I will not stand here and try to sell you something that I myself don’t buy. And my views transcend politics. This is why I don’t blame the previous government for the terms and conditions of the contract they negotiated, in the context of an offshore basin that had not yet been de-risked, it may not have been prudent to demand more. Who knows where we might have been today had that agreement not been signed,” he added.
He stressed that the public needs to understand that the company had a contract since 1999 and it was mutually agreed to by the present government and the company to have it modified in 2016.
“There was no formal negotiation process. The company had a valid agreement with the Government of Guyana which was not up for renegotiation. So there was no obligation on the part of the company to enter into any negotiations with our government,” he stressed.
Further, he added, “You don’t unilaterally amend a contract after the other party has invested hundreds of millions of dollars under the terms and conditions of that contract. Governments have to behave responsibly when it comes to business dealings, especially if we want to do more business down the line.
“Instead of being excited about this and trying to get prepared for the opportunities it could create like what we’re doing here today, some of us are shouting and screaming every single day from the front pages of our newspapers about what a terrible thing this is and how we’re getting ripped off and tied up like iguanas and all sorts of foolishness, including incomplete comparisons about how much other countries are getting in royalties and how little we are getting,” he posited.
“This is a new industry for Guyana and it’s one in which we don’t have any real experience, or any real expertise, or even suitable training programmes to help us build the capacity that we lack. It is an industry which requires high levels of up-front investment, well beyond what can be raised either from local sources or by local companies. Returns on that investment are also affected by price fluctuations and this increases the degree of risk for the investor. The question for us as Guyanese is – do we or do we not want an oil and gas industry in Guyana? The vast majority of the Guyanese people that I speak to would like to see Guyana producing oil. And they would like that to happen because they feel that somehow Guyanese people will benefit if Guyana becomes an oil producing country. And they are right. It is our oil. Why shouldn’t we benefit?” he questioned.
“We don’t have the ability to extract this oil. So we need someone else to do this for us. And there are not too many companies in the world that can do deep water oil exploration and production. It also involves a long-term relationship or partnership that is guided by an agreed upon contract, proper legislation and regulations and a fair amount of goodwill,” he said.
The Minister of Business believes that the country is in a much stronger position now to negotiate on the remaining blocks based on Guyana’s national priorities and that his government will ensure that it maximizes on that opportunity.
“The interest is there and many of the world’s leading international petroleum exploration companies want a piece of the action. And when it comes to allocating the remaining areas government will be hiring a firm with international expertise to guide that process. Because we now have options. There is a demand for our petroleum blocks,” he said.
“The paradigm has changed. We have proven resources. And, contrary to what is being suggested in the media, government Ministers do not negotiate oil production agreements or licences. And I have no problem with persons criticizing our government. Politicians are fair game. You throw your hat in the ring and you take whatever criticisms come your way,” Gaskin added.