Accelerating production of oil from Guyana’s first offshore well is important to rebuff any claims Venezuela may make in court in relation to the area, Minister of Natural Resources Raphael Trotman said yesterday.
Trotman told an Oil and Gas Law Training and Development Seminar at the Ramada Georgetown Princess Hotel, “We wanted economic benefits and rents, but more importantly because of the redrawing of the lines by Venezuela it was important for Guyana to move to production as quickly as possible so that we can assert when we got to court, that production was taking place within the territorial waters of Guyana.”
This, he said, will become an indisputable fact before a court of law.
According to Trotman, if there were no oil production, it would be disputed where the well stood. As a result, he said that getting to production was strategic because it had to do with the country’s sovereignty.
The minister made specific reference to the major oil find in the Stabroek Block on May 6th, 2015 and the claims by Venezuela, some 20 days later, that the Liza well was theirs.
On May 26th, 2015, Venezuela issued decree No. 1787 by which it declared that a massive swathe of Guyana Atlantic waters belonged to it. Following a diplomatic offensive by Guyana, Venezuela issued an amended decree but this was still unacceptable to Georgetown. The claim to the Atlantic waters by Venezuela had never been made before and was seen to be directly linked to the oil discovery by ExxonMobil’s subsidiary.
This situation, Trotman told the gathering, must be borne in mind in their deliberations throughout the seminar which ends today.
Explaining that the Liza well is 123 miles off the coast of Clonbrook, Mahaica, Trotman said it was never envisioned that Venezuela would also claim this area, as they had always been behind everything west of the Essequibo River.
Meanwhile, defending the controversial contract between the Government of Guyana and ExxonMobil’s subsidiary, Esso Exploration and Production Guyana Limited (EEPGL), which sees only a 2% royalty being paid to Guyana, Trotman said that EEPGL did not bring a contract to Guyana and say, “take this.”
In fact, he said that what was used was the updated contract model which the Guyana Geology and Mines Commission and the government had in place. According to him, it was the Guyana model that was used.
He lamented that there was nothing negotiated. According to him, what obtained in the 1999 agreement was the same as that of the 2016 agreement, but at the same time he acknowledged some changes, describing it as being “tweaked somewhat.”
To this end, Trotman said “it is important to us that we secure and anchor the company (ExxonMobil) in Guyana, and it is important for us that we move to production at the fastest possible time.”
Regarding what he said were the few additions to the contract, Trotman said that under the 1999 contract there was a royalty of 1% to be paid by the government for its share of the profit.
“So in a sense, it was a nominal royalty that amounted to “zero,” because the government was being asked to pay itself a royalty.” Under the 2016 contract, however, he said there was a nominal raise to 2%, of the gross earnings, declaring, “So we’ve moved from a situation of zero to 2%.”
Trotman said that while some have opined that the royalty should have been raised to 10% and in some cases even 20%, the government had certain factors influencing its decision.
These, he said, were production at the earliest possible time, and protection of the resource, while noting that there was no breach of the 1999 agreement as there was nothing that said that it had to be changed.
“It had not expired. Both parties voluntarily agreed to engage in a process of updating and “tweaking it to some extent. And the template used for the updates was the 2012 model developed and used previously by the government.”
“So it is not some new sinister agreement pulled out in a dark room….It was on our website,” Trotman added.
Many commentators have argued that the 2% royalty which the government has settled for is grossly insufficient, when compared with the profits EEGPL’s parent, ExxonMobil will be receiving from Guyana’s oil production, which is expected to be more than 500,000 barrels per day. There is also the prospect of more oil being found in the Stabroek Block.
On the US$18 million signing bonus under the deal between the government and EEPGL signed in 2016, Trotman said that government chose to set aside the majority of that for “what we knew was going to come and that is in referral (of the border controversy with Venezuela) to the World Court and we wanted to show that we had the best legal representation, and so that was done.”
He further went on to say that US$3 million of that was set also aside for capacity building.
Quoting from an IMF review of the contract, Trotman highlighted where it said that ‘the bonus appears to be relatively high for a new producer. High signature bonuses are more common in matured jurisdictions in which petroleum resources have already commenced.’
He noted that some people said the signing bonus should have been much higher. “We have a different view,” he asserted.
Again referencing Venezuela’s claims, the minister said that while you may have oil in the ground, you may not be able to touch it. “So not because you found oil you have the right to demand high bonuses,” he added.
According to him, “when you start to produce and can prove that production is sustained and not hindered in any way, then you can say, we are a producing nation. At this point, we are a nation of great potential. We now wish to turn that potential into prosperity.”
As he outlined some of the plans for the oil and gas sector for this year, Trotman said that in addition to establishing a Department of Energy, government is also looking at the viability of having a National Oil Company.
On the cards too, is the development of a Scientific Institute with the help of the Government of Mexico, for which collaboration is also being pursued with the University of Guyana.