The 2016 renegotiation of the Production Sharing Agreement (PSA) between government and ExxonMobil’s subsidiary benefitted both sides, according to the company’s Country Manager Rod Henson, who said that the oil major did not “strong arm” anyone and warned of the impact on investment if changes to the agreement are sought.
“We didn’t come in here and strong arm anyone…It was the government’s model contract and it was a good contract. It had objectives which now is bearing fruit,” Henson told Stabroek News in an exclusive interview.
With concerns now raised by government about the lack of ring-fencing provisions in the agreement, and continued criticisms of the 2 per cent royalty and $18 million signing bonus that was arrived at during the 2016 renegotiation, Henson says that pushing for another set of changes does not augur well for attracting investors here. He also indicated that the absence of ring-fencing provisions was positive for a frontier country like Guyana.
“Those parties voluntarily signed an agreement which would have many, many benefits for the country. What the country got was a signing bonus, the country got increased annual fees, increased work commitments, I think what it also benefitted from was more time,” he added.
The 2016 PSA has come under withering attack since it was released at the end of 2017. It contained a 2 per cent royalty figure for Guyana on every barrel of oil which experts said should have been far higher since the deal was concluded after ExxonMobil’s major oil find in its 6.6 million acres Stabroek Block. It also catered for a US$18 million signing bonus which experts said should have been higher and which the government had not publicly disclosed until it came under pressure to release the PSA. ExxonMobil’s local subsidiary, Esso Exploration and Petroleum Guyana Limited (EEPGL), also retains control over hundreds of oil exploration blocks within its Stabroek Block when the maximum figure, according to the law, should have been 60. A series of other issues have been pointed out with the PSA and the fact that Guyana did not have a single oil expert on its negotiating team has also been highlighted.
Only last month, government, for the first time, expressed concern that the lack of ring-fencing provisions in the PSA could negatively affect revenue earned from oil.
When the 2016 renegotiated agreement was signed, Raphael Trotman, the Minister of Natural Resources was responsible for oversight of the sector but he has absolved himself of any responsibility in relation to the absence of ring-fencing provisions. He has said that he acted on the advice and direction of the Guyana Geology and Mines Commission (GGMC).
However, Commis-sioner of the GGMC, Newell Dennison, had expressed, in a report he made in April 2016, following a meeting with ExxonMobil’s officials at their Houston, Texas office, that he was sent to a “technical caucus” when the renegotiation came up.
The report by Dennison also provided some insight into what would be seen as hard-nosed tactics by ExxonMobil where only Dennison and Manager of the then Petroleum Division, Christopher Lynch, attended as Guyana’s representatives.
Dennison said that EEPGL “confronted” the GGMC on the matter of their contract and licence. Among other things, the issue of a signing bonus also came up.
It is still unclear, as government never sought to explain, why the issue of the signature bonus would be presented to ExxonMobil at what was described as a “technical meeting.” How it was computed was also queried and Trotman had told the Parliamentary Sectoral Committee on Natural Resources that government determined the sum to pay for legal representation at the International Court of Justice’s case it has with Venezuela over the border controversy.
Trotman had said that all decisions taken in the contract were as part of a collective Cabinet. He has said too that if he alone were responsible for the renegotiation of the PSA, it would have been done differently and stressed that “the decisions taken were… collective Cabinet decisions.”
This newspaper understands that after the GGMC officials returned to Guyana and presented the report, they never heard about or saw the renegotiated contract until it was completed and ready for signature in June 2016 and the agency was not asked for further input.
‘Working beautifully’
Henson, who has some 30 plus years with the company, working around the world in Southeast Asia, Europe, the Middle East, Russia, and South America, in his interview with Stabroek News, defended the contract saying that it was a good one and has worked in the country’s favour. He also said that contracts evolve over time.
“To me, one of the biggest benefits to that [the 2016 renegotiation] was providing us more time to appraise Liza. At that time, we did not have to renegotiate. We had a couple of years left on our current terms. Neither side had to. Neither side strong-armed the other side. But had we not renegotiated at that time, we would not have had first oil by early 2020. We just wouldn’t,” he said.
“The other thing that time gave us was time to better evaluate that 3D seismic data. And the benefit of that is that it gives us a higher success rate at exploration wells. So although no one can play the ‘if’ game and predict a different future, I am quite confident that our success rate would have been lower. We would have had more dry holes had we not been given a little more time to study that seismic,” he added.
Henson believes that the contract is working “beautifully” for both sides and said the nation should not see it in a negative light as the rewards would be comforting.
“The contract is working beautifully, as it was intended to do. It has succeeded to attract investors to come and find oil and develop it to the benefit of the country. So the contract is doing exactly what it was designed to do, and I think that the people should be proud of that and be very happy about where we are right now. The contract is a fair contract. It absolutely is a fair contract given the risk profile of where Guyana is. These are multi-decade agreements and we need to keep in mind that there were over 30 wells drilled in this basin, all unsuccessful, all dry holes,” Henson said.
“Even today, there is no production in Guyana. Given that, the contract is absolutely competitive when you compare it to other frontier countries. It is a multi-decade agreement and it has to be that way because these are extremely large capital investments that companies make when they come here and take this risk. The Liza Field will produce for decades and decades so the terms have to stay for decades and decades as well. It is fair and completely normal for the same stage Guyana is in. Again, this is a multi-decade contract and through time, contracts will evolve. If you take any mature countries like the United States, Brazil or Trinidad, you will see that over years and years and years, contracts will evolve,” he added.
Asked if his company is prepared to renegotiate and specifically increase the two per cent royalty rate, Henson said that the company not so long ago renegotiated and the changing of terms often scares investors.
“I can’t predict the future. We are going to be here for a long, long time. We are partnered with the country and we are proud and humble to do that but again, these are multi-decade agreements. We have had to enter into contracts ourselves now and invested billions and billions of US dollars, based upon what we understand to be our agreed to terms,” he said.
“The other things I have to say is that we did renegotiate that a very short time ago. And so, in these types of agreements, if you are going to change the terms every couple years, you will never make progress. You will not be able to attract international investments, multi-decade investments, if the terms are going to change every couple of years. In my opinion, the terms don’t need to change. The contract for Guyana is doing what it intended to do. Right now, Guyana is the belle of the ball. You are meeting the objectives to contracts,” he added.
‘All governments’
Pressed on what would be his company’s posture if a new government pushes for re-negotiation, he replied, “We work with all governments. We work with this government, we are going to work with every government from here to the next several decades. The facts of the matter don’t change based on who is on power on a given day.”
Henson, also a petroleum engineer, was quick to highlight the advantages of Guyana not having ring-fencing provisions saying it was normal for those provisions to not be included in a contract for a frontier country like this one.
“The contract that Guyana has is absolutely typical. If you look globally, there are countries that have contracts that have no ring-fencing which are essentially like block-like cost recovery and you have countries that put a greyness; that puts a small ring-fencing around individual fields. There are examples of each and what Guyana has is absolutely normal and particularly for a more frontier area. The way it is now, it encourages investment, it encourages companies to explore more and if you make a discovery, particularly if [it is] a marginal discovery, it encourages you to appraise that more. A negative of ring-fencing can be, particularly when you get into marginal discovery, is that it makes all this exploration a little more risky,” he said.
“You don’t know if you will have cost recovery. It, to some degree, discourages it or it will, to some degree, reduce as well, appraisal. Another great benefit if you take our example where we made multiple discoveries, because we can treat the block as a block, it allows us to have more synergies, more efficiency, optimise the development because we may need to have infrastructure that goes between fields. Not to say that you couldn’t do that with ring-fencing but this contract greatly simplifies, creating the most optimum development for what we have got,” he added.
‘Stay the course’
Henson also dismissed criticisms that ExxonMobil, both locally and globally, behaves ruthlessly with poor countries like Guyana. He was asked if the company’s conscience wasn’t pricked when it negotiated opposite the Guyana Government in 2016 which at that point did not have a single oil and gas expert on its side.
“I have worked with this company for 30 years, my son worked for this company. We are just people, just like you. We are more than half Guyanese. Janelle, are we monsters? When she leaves, will my horns come out of my head?” he asked the company’s Public and Government Affairs Advisor Janelle Persaud, who was present at the interview.
“Think about it, all the contracts are the same, aren’t they? They are all public,” he added.
To Guyanese who may have trepidations about the emerging sector, Henson has this advice: “Things are moving well and as expected. Be optimistic, continue to think about those good things like transparency, how the revenues are going to be spent, how best to manage this transformational decade. Things are going very, very well. Stay the course.”
