Response to some of the comments about my presentation at oil and gas seminar

Dear Editor,

Having heard and seen a number of critical responses to a presentation I made at the Private Sector Commission sponsored Oil and Gas Seminar a week ago, I am of the view that the usual suspects have exhausted the available raw material and that nothing new is likely to be added to their outputs on the matter.

I therefore wish to respond to some of the comments made over the past week regarding my remarks at the above mentioned seminar.

The heading ‘Business Minister Dominic Gaskin appears to be confused or worse, misleading’  appeared on the front pages of a daily newspaper (KN Mar 7) as well as in the introduction and in the conclusion of the accompanying article. While not pretending to be an oil and gas expert, I am certainly not confused when it comes to what I said at that event. It would also be presumptuous of me to attempt to mislead the likes of those in attendance. I therefore reject this as a flawed assessment.

In the same article it was reported that “… the Business Minister noted that Guyana has a royalty and production sharing type of agreement. But Ghana, he said, has a royalty and taxation model. Whichever you choose to call it, oil and gas experts agree that both are Production Sharing Agreements.”  The final assertion is untrue. Granted, there can be some overlap, there is a distinction between the two models which makes it foolish to compare just the royalty aspects of the Ghana and Guyana contracts without looking at the other revenue streams. Independent research will show that the royalty and taxation model also referred to as a concession contract was an earlier model which many countries have since discarded in favour of Production Sharing Agreements (PSAs). I am not qualified to pronounce on the merits of one over the other, and was therefore simply pointing out the incompleteness of the royalty comparison. I believe this was understood by most persons in the room.

The article continued “… The Minister failed to mention however that in comparison, Guyana still did not secure a better deal for its nonrenewable resource.” This is correct. I never attempted to imply that Guyana got “a better deal” than Ghana. I merely sought to add substance to the limited information that was being shared by certain persons.

It went on, “Furthermore, the Minister stated that Ghana has Petroleum Exploration and Production Legislation that gives Government a 10 – 15% stake in oil production companies subject to payment of their share of operating expenses. He noted that Guyana’s Petroleum Act has no such provision. But several local oil and gas commentators found this to be an appalling statement from the Minister. In fact, Guyana’s legislation has provisions for that same kind of interest.” Please find below the relevant sections of the respective Acts which your readers can interpret for themselves. Please note that the “Corporation” referred to in the Ghanaian Act means the Ghana National Petroleum Corporation.

Ghana – Petroleum Exploration and Production Act (2015), Section 10

“(14) A petroleum agreement shall contain a term that the Corporation shall (a) hold an initial participating carried interest of at least fifteen per cent for exploration and development, and (b) have the option to acquire an additional participating interest as determined by the petroleum agreement which (i) may be exercised within a specified period of time following the declaration of commercial discovery, and (ii) shall be a paying interest in respect of costs incurred in the conduct of petroleum activities other than exploration costs.”

Guyana – Petroleum (Exploration and Production) Act (1986)

“22 (2) There may be included in a petroleum prospecting licence provision with respect to the exercise by the State, or any agency thereof identified in the licence, of an option to acquire on stipulated terms, or on terms to be agreed, an interest in any venture for the production of petroleum which may be carried on in any block or blocks to which the licence relates.”

The Ghanaian mandate is very clear, while Guyana has no mandatory requirement for Government to acquire an interest in petroleum activities.

The article also sought to mislead the public on the issue of the stability provisions with the following extract: “The politician goes further to state that the Ghanaian contract has stability provisions. But this too is false. There is not a single paragraph or sentence in the Ghana contract which says that ExxonMobil would be insulated from future laws and taxes to be imposed by that nation.”

Sub-sections 26.3 and 26.4 of Article 26 – “Miscellaneous” of the Ghana agreement read as follows:

“26.3 In the event that after the Effective Date any applicable law, rule, decree, or regulation of Ghana is made or amended (or there are changes in interpretation or application of any applicable law, rule, decree, or regulation effective as of the Effective Date) that makes further observance of the original terms and conditions of this Agreement impossible or has a material adverse effect on the rights, obligations, and benefits of Contractor under this Agreement, or otherwise materially affects the economic, fiscal, and financial balance of this Agreement, the Parties shall, if Contractor so requests, meet as soon as possible to negotiate, in good faith, possible modifications to the Agreement as may be appropriate to restore the economic, fiscal, and financial balance of this Agreement; provided that, at a minimum, to the extent Contractor’s rights, obligations, or benefits (including the economic, fiscal, and financial balance) which existed at the time the Agreement was executed by all Parties, cannot be restored, even though the Parties have agreed to modify the Agreement, the State shall indemnify Contractor for the adverse effect on Contractor’s rights, obligations, or benefits (including the economic, fiscal, and financial balance) through financial compensation or other means acceptable to Contractor.

“26.4 Should the Parties be unable to agree on a mechanism to restore the economic, fiscal, and financial balance of this Agreement pursuant to Articles 26.3 or 26.4 within thirty (30) days from the date on which the notice above was received (or such longer period as may be agreed by the Parties), then any Party may refer the matter to arbitration pursuant to Article 24 of this Agreement, and the arbitration panel so appointed shall be directed to order such remedies, including damages or modifications to the Agreement, in order to restore the economic, fiscal, and financial balance of the Agreement as at the Effective Date.”

If the above does not qualify as a stability provision then perhaps I am indeed confused since this provision is not unlike the one contained in Article 32 (“Stability of Agreement”) of the Guyana Agreement.

Next came a letter from Christopher Ram (SN Mar 8) claiming that the Minister (me) “stunned at least some in the audience with his attack on sections of the media, his unbelievably misinformed and inappropriate comments on the Esso/Hess/CNOOC Petroleum contract, and his incomplete and flawed contrast between oil and gold.”

He then comments on three “outlandish statements” made by myself at the seminar.

“1. That the 2016 Agreement is not a new Agreement. The Minister needs only to compare cover pages to see that while the 1999 Agreement was with ESSO Exploration and Guyana Limited, the new Agreement is with three companies – ESSO, Hess and CNOOC.”  Ram seems to be judging the book by its cover and not its contents. I stand by my statement that this a modified version of the 1999 agreement. Both documents are publicly available and contain pretty much the same structure and language except for an additional Article (# 33 Signing Bonus) inserted in the 2016 agreement and few modifications of the effects of which have already been ventilated. I did speak of the contract between ExxonMobil and the Government of Ghana being a “new contract” for the company to begin oil exploration in that country. That should inform Mr Ram of the context in which I understand a contract or agreement to be a new one.

“2. That there were no formal negotiations. Is the Minister not embarrassed to admit that the Government has entered into the largest Agreement ever in this country, granting what amounts to a forty years tax holiday and binding succeeding governments for the same period, without any negotiations?” I stand by my statement that; “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.”

“3. Most unbelievable of all,that the Company was under no obligation to negotiate. Does the Minister not know that it was Exxon that requested a new Agreement and a new licence because the 1999 licence was about to expire and that Exxon threatened a GGMC Team visiting Texas last year that for ESSO to start spending, a replacement petroleum licence and agreement was required?” Requesting a new license is different from an obligation to negotiate or renegotiate a valid existing agreement. I maintain there was no obligation for the company to renegotiate its contract with the Government of Guyana. The period of validity of the contract is addressed under Article 29.1 of the 1999 Agreement as follows: “ This Agreement shall be deemed to have been terminated if the petroleum prospecting licence granted to the Contractor pursuant to Article 3 and every petroleum production licence granted to the Contractor under Article 8 has either expired or, under and in accordance with the Act and any relevant provision of this Agreement, been surrendered by the Contractor or lawfully cancelled by the Minister pursuant to section 42 of the Act but save as aforesaid, shall continue in full force and effect so long as Contractor continues to hold any of the said licences.”

Monday’s Peeping Tom column (KN Mar 12) also took a stab at my presentation including the point that “we cannot play hardball with investors because they can take their investors elsewhere.” Why would Peeping Tom not have quoted exactly what I said, which is; “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 stand by this statement and it should be noted that I did point out that; “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.”

Peeping Tom also contends that; “The Minister is reported as saying that there is lot of room for improvement in the agreement”, and then asks; “Well, if there is room for improvement, why was it not improved? Why did Cabinet give its approval to the deal when it would have been presented with an opportunity to improve it?” I’m not sure if Peeping Tom actually heard or read my remarks but, had he done so, he would not have had to ask those questions.  In my presentation I specifically made the point that the company had a valid contract signed in 1999 and was under no obligation to renegotiate it. I also acknowledged that there were some agreed upon modifications to the contract in 2016 and expressed the view that; “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.” I stand by this particular position. One cannot overemphasize the importance of governments honouring contracts and agreements when it comes to doing business.

The room for improvement can be addressed in future negotiations, which is why I mentioned that, “Guyana is now in a better position to negotiate the other petroleum blocks.” Peeping Tom does not agree and that’s fine. Time will tell and we shall see.

My comparison of government revenues earned from gold with those likely to be earned from oil appears not to have been understood by Peeping Tom. The comparison was factual and designed to illustrate that:

1. a) By no stretch of the imagination could the Guyana Government’s take of oil revenues be considered “chicken feed” since in the first year of oil production government is likely to receive revenues equal to what it received in the last eight years (the best eight years in the history of gold production in Guyana) from all the gold produced in Guyana; and

2. b) It is important to look at the entire regime and not just the royalty since the same value of gold from which the government received approximately US$300 million in royalties and taxes over the last eight years would have yielded approximately US$700 million in government revenues under the terms of the much maligned Production Sharing Agreement.

I am very aware of the spin-off benefits of the gold industry to Guyana’s economy, however, the discussion was about oil and not gold and my reference to the gold sector was purely for the purpose outlined above.  Peeping Tom’s question about the US$830.7M in foreign exchange earned from gold exports in 2016 and its impact on the local economy is therefore superfluous to the arguments concerning government revenues under the 2016 Petroleum agreement. Nevertheless, I would be the first to acknowledge that a significant portion of the proceeds of gold sales are retained and circulated in the local economy, and that this is a good thing. I also made it clear at the outset that I was not “knocking gold” and that I liked gold.

Another article (KN Mar 8) under the heading; ‘Gaskin belittles gold sector to please Exxon…throws it under the bus, even before a barrel of oil is produced -Chartered Accountant’ referred to my comparison of government revenues from the gold sector to that expected from the petroleum sector as “vacuous” and reported that “Chartered Accountant Nigel Hinds believes that Gaskin was out of line.” Hinds is also reported to have said that my “behaviour is most disingenuous, unpatriotic, premature and immature.”

That’s rich. I’ve already addressed my remarks on the gold revenues earlier in this letter and will not comment on all the arguments raised by Mr Hinds against what I said, except to say that he clearly did not get the point and is unlikely to get the point as long as he remains bent on attacking anyone who does not share his contempt for what is probably the most positive development in Guyana’s post-independence history.

He is also reported to have said that “Gaskin is palavering about economic issues and industries of which he has minimal knowledge just to please the Exxon Overlords of Business in Guyana” and that I was “engaged in a fruitless attempt to rationalise an illogical contract that the Government signed with Exxon.” This is just plain silly. The fact the other contracts with similar terms and conditions have surfaced points to the use of a standard contract or a standard set of terms and conditions by the previous government. Article 2 of the 1999 Agreement refers to the Guyana Geology and Mines Commssion (GGMC) as being “authorized by the Minister to negotiate this agreement subject to the provisions of the Act and Regulations …”  Is Mr Hinds suggesting that the GGMC, the previous government and the current government and their respective legal advisors all failed to recognize that this was an “illogical” contract, or is he simply lashing out at a contract that he himself is unable to rationalize?

Perhaps the most illogical response so far is the one appearing in the Guyana Times on March 10th , 2018, signed by Peter Ramsaroop, PhD, MBA, Chairman, Vision. Mr Ramsaroop quotes me as saying that “the 2% royalty is decent, since the royalty earned on gold in the past eight years would amount to just one year of earnings from oil.” That’s not exactly what I said. Mr Ramsaroop was there and should know this.

His statement that, “For the Minister of Business to ignore the more than $2 billion in cost recovery and profit that ExxonMobil would be walking away with each year is to assume that the Minister is now singing for his supper” is absolute rubbish. Which sane investor would invest hundreds of millions of dollars in a venture and not expect to recover this money? Would he?

Mr Ramsaroop also posits that “Lower oil prices could very well mean that Guyana would earn little to nothing on royalty, while ExxonMobil secures all earnings to meet cost recovery”. This too is rubbish. Fortunately this made-up scenario does not arise under the terms of the contract since cost recovery is limited to 75% of the gross earnings no matter how low the price of oil.

In closing, a few comments from the Leader of the Opposition, who may very well have been the architect of the 1999 Agreement. In his usual gloomy style, he offered a scenario based on oil prices at US$25 per barrel.  Is this his campaign promise? He then accused government of waiting for oil and promising Guyanese that, “we wouldn’t have to work anymore, we will have free gas from the government…”  This doesn’t say much for his target audience. I challenge him to disclose who in the current government made such promises.

Yours faithfully,

Dominic Gaskin

Minister of Business

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