How was the signing bonus calculated?

Dear Editor,

In relation to the newest Ranger-1 well announced a few days ago, it was said in an SN article: “It has more than 230-ft of high-quality, oil bearing carbonate reservoir which is now being described as the single largest find in the (Stabroek) Block. Questions may well be asked as to why the Ranger site was not drilled earlier”.

(1) If you have one well (capacity 500 million barrels) the signing bonus is $30 million. (This is an estimate deduced from other sign-on bonus contracts, around the world.)

(2) If four wells (total capacity 3.5 billion barrels), then the signing bonus should be $210 million. In Guyana, the government got a negotiated signing bonus of $18 million based on a total of a 3.2 barrel-reserve from four wells.

Last week ExxonMobil announced the Ranger-1 well which promises reserves greater than 3.5 billion barrels. So how does this work? Does the signing bonus ($18 million) cover all discoveries up to the signing date with future discoveries requiring new negotiations for additional sign-on bonuses?

Dr Tarron Khemraj says in Sunday Stabroek (Jan 7) the signing bonus should have been $238 million (based on past discoveries totalling 3.2 billion barrels). Several other academics and lawyers have questioned the basis of the $18 million bonus received. Is there a formula? Is it based on barrels of reserve discovered? Or a combination of risk factors? Dr Khemraj thinks the risk factors for Guyana are very low, the quality of crude is very good compared to several other countries, and the transportation cost to refineries in Houston, Texas or to Trinidad, is also very low compared to transportation cost from, say, Australia.

There is a clear perception that Guyana has been cheated on the signing bonus, a miserly $18 million. And, now a new world-class discovery, Ranger-1 which promises a reserve greater than 3.2 barrels. How does this latest discovery factor in to a signing bonus, if it is based on the size of discovered reserves?

I would urge President Granger to use his executive powers to re-open negotiations with ExxonMobil to discuss the basis of the bonus. No need to rescind or threaten to rescind the contract. Just ask the ExxonMobil folks to explain the basis of calculations for the bonus. There is much precedent for these types of talks. The United States government has many times ordered talks with foreign governments and big corporations, notwithstanding existing written agreements and contracts. It is called moral suasion or jawboning.

And, if these negotiations can be re-opened, they should place on the agenda the 2% per cent royalty (Chartered Accountant, Anand Goolsarran has said royalty, based on comparative analysis should be at least 7%), and the fact that GoG is required to pay corporate income tax to itself on behalf of the oil company. The latter, in my opinion, is a real humiliation to the Guyanese people; how can a government be required to pay to itself income tax on behalf of a foreign-based oil company operating on its territory?

Yours faithfully,

Mike Persaud

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