Exxon/Esso deeds should be renegotiated, there should be minimum 10% royalty

Dear Editor,

We are grateful to the analysts, commentators and media for highlighting the essential elements, oddities, illegalities and absurdities of the secret 1999 PPP/C agreement and the secret 2016 PNCR Exxon/Esso Agreement with Guyana. We need to continue to agitate for changes to the deal, especially since both governments have proven to be stubborn, dishonourable and secretive, have clearly signed on to illegal clauses and appear to have given away the natural resources of this country, once again, to foreign interests and sold out the interests of the Guyanese people.

I wish to briefly sum up some of the more egregious absurdities, illegalities and facts recently disclosed as follows:

1. The original secret 1999 agreement signed by Janet Jagan was with Esso Exploration alone, whereas the 2016 secret agreement signed by Trotman is with Esso, CNOOC Nexen and Hess, all of which are shell companies incorporated in The Bahamas, Barbados and Cayman Islands. This change has serious consequences especially those relating to permits legally required from all of them.

2. The 2016 agreement includes exploration for gas unlike the 1999 agreement which dealt only with oil.

3. In the oil and gas business, no one gets in on the action for free. TOTAL paid over US$13 million for 25% stake in the small Orinduik Block (1801 km2), where oil has not even been discovered. TOTAL is also a 25% partner in the Kanuku Block (6525km2) and has an option to get in on the action on the Orinduik Block. It also is in on the action on the Canje Block (6021km2) at 35% with Exxon/Esso.

4. Nexen and others must have paid handsomely to Exxon/Esso for shares in the partnership with Exxon/Esso in the Stabroek Block (26 806km2) where large amounts of oil were discovered.

5. In the first 1999 secret agreement, Esso exploration’s territory is shown at 60,000km2 whereas in the second one, only 43,000km2 is accounted for. This needs early clarification by the Guyana Geology and Mines Commission (GGMC). It may very well be that some blocks are still being held in reserve by Esso/Exxon. In any event, based on TOTAL’s investment above, one can reasonably put a value of approximately US$3 billion on the Esso partnership deals. These are in blocks where oil has already been discovered. Exxon/Esso has already recovered its alleged US$460m in pre contract costs many times over.

The GRA must investigate this matter thoroughly. Capital gains may be payable on these deals.

1. New partners are lining up daily for a piece of the action from Exxon/Esso such as JHI, Mid Atlantic, and Ratio. The disaggregation of the original blocks into various partnerships will create additional problems of assessing taxes, profitability and production sharing of all of these actors.

2. Exxon/Esso has already made US billions on their booked reserves and the partnership deals without producing a gallon of oil. Petroleum companies live and die by booked reserves. Their share prices and capacity to attract partners and sell partnerships are a function of these proven reserves.

3. It has already been reported that while attention was distracted deliberately by the 2% royalty and “signing bonus” in the new secret 2016 agreement, Exxon/Esso actually received a new prospecting licence, the previous one having long expired and thus should have triggered relinquishment. Based on the 18 year exploration (1999-2017) period enjoyed on the previous secret licence, this new exploration can now take them to 2036 (just exploring) plus another 20 years of production to 2056 plus possible extensions granted by a malleable government. If unchecked, Esso will be here until 2092 or thereabout. As for the so called “signing bonus” of US$18M this is merely a contribution towards legal fees and has been falsely misrepresented. Guyana never received a signing bonus.

4. There has been a lot of talk and speculation about the ring fencing of expenses among oil blocks. This has become even more important with the sale of partnerships, but an even more critical question about ring fencing is not ring fencing among oil blocks. It is really ring fencing oil costs from expenses relating to gas exploration. That is more problematic. Clause II of the Agreement provides that “the contractor shall bear and pay all contract costs incurred in carrying out petroleum operations and shall recover contract costs as recoverable contract costs only from cost oil and/or cost gas as provided”. Further, all recoverable contract costs incurred by the contractor shall be recovered from the value of a volume of crude oil and/or natural gas (cost gas) produced and sold from the contract area etc. Clause 11.2

5. According to Clause 2.4, the contractor shall keep the government indemnified against all actions, claims, etc, if brought against government by a third party by reason of negligence. However, the agreement seeks to limit the liability of the contractors for damages in such amounts as is required by applicable laws, rules, and is “customary in the international petroleum industry in accordance with good oil field practice”. However, the contractor shall not be liable to the government for indirect punitive or consequential damage including but not limited to production or loss of profits. This is extremely troubling; it seeks to limit the damages a court may award against the contractor. This means that the agreement is seeking to interfere with what type of damages a court may award. But also, if the contractor is not liable, then who is? We need to know.

6. The agreement provides for Exxon to garner tons of oil for free, outside of its share as per agreement. Pursuant to clause 11.9, the contractor shall have the right to use in any operations as much of the production as may be required by it, and such quantities used or lost shall be excluded from any cost oil. This clearly means that you can take for free as much as you deem in the “operations” which include the transportation and terminal systems. This is a blank cheque given to the contractor to take whatever he wishes without limitation. Incidentally, for the purposes of calculating the measly 2% royalty payable, this amount taken is not to be counted as part of production. (Clause 11.9)

7. An unbelievable absurdity requires the GGMC lawfully appointed successor to notify Esso in advance with 90 days written notice of its duties and responsibilities previously assigned to the GGMC. This 90-day written notice to the contractor is repeated in Clause 6.1 whereby the government wishes to delegate certain duties to other state agencies.

8. Many persons have questioned the details of the mechanism in place to deal with a major spill or catastrophe. Clause 28.6 states clearly that if the contractor does not act promptly to control or clean up any pollution within a reasonable period specified by the Minister, then the Minister may take any actions which are necessary in accordance with good international petroleum industry practice and the reasonable costs and expenses of said actions shall be borne by the contractor. In simple language, this means that the Minister must arrange the cleanup and send the bill to Exxon/Esso. It is incomprehensible how a Minister can arrange a cleanup if Esso who caused it could not do it and Exxon is supposed to be the most technologically equipped and advanced of all the companies. Can you imagine Trotman arranging a clean-up?

9. According to Clause 6.6 where the contractor requires approval from the Minister, if no response is received by 60 days, the approval is “deemed granted”. Also when the Minister does not carry out certain of his duties under Clause 6.2 and fails to agree to the contractor’s proposals by 60 days the proposals shall be “deemed adopted”. End of story. The contractor puts the Minister on a tight deadline. Do it within 60 days or it’s done, no more waiting on you.

10.  Clause 25.3 where contractors seek consent for assignment or transfer, and the Minister does not give consent within 60 days, consent shall be “deemed given”. End of story. Compare this with the 5 years given to the contractors to complete a feasibility study regarding the utilization of excess associated gas in the oil field following the submissions of the development plan associated with gas. Esso can take up to five years but the Minister must not take more than two months. How nice!

In conclusion, it must be said that enough has been spoken and written about the Exxon/Esso/Guyana Agreement. Much more can be said but there needs to be a limit placed on talking and writing. Guyanese by now should have an opinion on the issue but the agitation must continue to bring about change and renegotiation.

The nascent oil industry poses a clear and present danger to the entire fisheries sector of the economy and the environment in the absence of iron clad guarantees and protection.

These guarantees do not exist at the present time. At a minimum, the contract should be dramatically overhauled and rewritten, and a Trust Fund should be set up to deal with the negative impact on the industry and for compensation for pollution when it occurs. This will go some way towards mitigating the fears and apprehensions of many. All of those responsible for the 1999 and 2016 secret disasters should be made to account for their actions, especially for selling out the patrimony of Guyana.

Editor, don’t forget the government still hasn’t released the Bridging Deed which is part of the 2016 secret deal that Trotman did. The government arrogantly refuses to take heed of all the valid concerns of a corrupt, anti-national contract.

What needs to be done? At a minimum, the Exxon/Esso deeds and all other agreements should be renegotiated and reformulated to provide for the following:

1. A minimum of 10% Royalty

2. A $1 billion US Trust Fund to deal with pollution and the calamities and certain claims arising therefrom.

3. An adequate signing bonus. Based on discoveries and proven reserves, a “signing bonus” was paid but it was really a contribution towards legal fees. None was ever really paid and the monies for legal fees were dishonestly misrepresented as a bonus.

4. Compliance with all the applicable laws of Guyana, in particular the petroleum and environmental laws with special attention to restriction on blocks, taxes on profits, taxes on sale of partnerships, local content training, procurement, arbitration proceedings, applicable laws, stability of contract, etc.

5. Intrusive and frequent audits and inspections of all operations including the placement of permanent staff 24-7 on all the facilities.

6. Detailed forensic audit of the US$460 million allegedly spent by Esso and allegedly claimed as pre-contract costs

7. Adequate insurance and performance bonds to be issued by independent, international acceptable financial institutions

8. Legal incorporation and registration of all companies in the sector under Guyana law.

Finally, the government must:

1. Publish the Bridging Deed and all other secret agreements since 1999.

2. Eliminate all the abnormalities and illegalities in the agreement and the tax fee status of the richest company in the world.

3. Suspend the grant of any further blocks.

4. Create a Guyana National Oil and Gas Exploration and Production Company to  facilitate joint ventures for all remaining blocks

These are some of the measures that must be taken to improve the situation at a minimum. If all of the above fails, the only available alternative is a recourse to the judicial system.

Yours faithfully,

Ramon Gaskin

Around the Web