‘Shady’ provisions cloud ExxonMobil contract

-oil investor

Dr Tulsi Singh presenting at Moray House on Friday.
Dr Tulsi Singh presenting at Moray House on Friday.

Guyana’s contract with oil major ExxonMobil is a good one but some of the provisions are “shady” and the signing bonus and royalty were too low, says Dr Tulsi Dyal Singh, a Midland, Texas-based small oil and gas investor who has been involved in various aspects of the industry.

Singh, on Friday, hosted a talk called ‘Get Ready Guyana: You Are An Oil Man’ at Moray House. The talk was based on an article he wrote for the Guyana Annual 2019. Singh, who has been a resident of Midland – which sits over the oil-rich Permian Basin – for over 40 years, has had first-hand experiences of the ‘booms and busts’ of the oil industry.

ExxonMobil has discovered over five billion barrels of oil offshore Guyana and is moving to begin production early next year. However, the 2016 Production Sharing Agreement (PSA) with the Government of Guyana has come under withering criticism 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.

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.

At his talk, Dr Singh shared his views and findings on what the oil industry and its revenue can do for Guyana and how the Guyana can be prepared for the long term even after oil production decreases. He noted that, according to reports, the oil that will be produced here would be of great quality.

However, he said that while he feels the contract signed with ExxonMobil is a good one, he is not happy with some of the terms. “What I don’t like is that Guyana will be paying or has agreed to pay Exxon’s income taxes…it looks shady to me,” said Singh, who added that it makes Guyana look like an accomplice to a shady deal. In his opinion, he said, the signing bonus and the royalty is too low.

“If the tax shenanigans were not included, if Guyana was not required to change its laws to make any illegalities legal… if the signing bonus was not a pittance of the norm…what a great contract that could have been,” Singh added.

He went on to say that while it was presented that the economic life for the Liza-1 field is 20 years, the hydrocarbons, which took millions of years to be formed, do not replenish themselves and would be depleted at a rate of about 12 per cent per year. “And you get about half of your production in the first six years, whatever the ultimate recovery is, typically you get half in the first six years and after that it tails off until it gets to a point where the economic cost doesn’t make any sense,” Singh added.

He showed calculations of what the expected revenue can be if the first full year of production is to be 2021. His calculations were based on the premise of 100,000 barrels of oil produced daily for 365 days with one barrel valued at a current price of US$63.30.

“Assuming that you are not giving any discounts, assuming that you are not going to have to pay any transportation… insurance, any other cost. This is your selling path, exactly the best play,” Singh said. He said that the revenue stream would be US$2.3b and the 2 per cent royalty Guyana is expected to receive from that would be US$46,209,000.

Singh stated that the revenue can and should be spent on infrastructure, technical colleges, health care facilities and preparation to further other industries for the future. He added that more money should also be invested in the move towards solar power and electricity.

He pointed out that in the oil and gas industry, there is a bust and boom cycle and he has experienced a number of busts in the oil industry in Midland, Texas. He said that busts in the industry are not easy to foresee or expect. He added that this occurs when the demand and price for oil drops significantly.