Gov’t stands by Exxon oil deal, backs Trotman

Raphael Trotman
Raphael Trotman

Government yesterday defended its decision on the 2016 renegotiation of the Production Sharing Agreement (PSA) with ExxonMobil subsidiary Esso Exploration and Production Guyana Limited (EEPGL) and partners, saying it was in Guyana’s best interest.

In a centre page advertisement in yesterday’s Sunday Stabroek, government blasted a recent report from anti-corruption non-governmental organisation Global Witness, and said its actions were transparent and can withstand public scrutiny.

“The Government of Guyana believes in the sanctity of contracts and given all circumstances, sees no justification to the suggestion that the 2016 Petroleum Agreement is an improper contract,” the advertisement stated.

 The 2016 agreement has been the subject of controversy as some have argued that a better deal could have been negotiated as a significant oil discovery had already been made on ExxonMobil and its partners 6.6 million acre Stabroek Block offshore Guyana.

The ad emphasised that the government stands behind Minister of Natural Resources Raphael Trotman for his role in renegotiating the contract, saying that he did nothing wrong. “All of our actions have been transparent and can withstand public probity,” government said. Global Witness had called for an investigation of Trotman’s handling of the negotiations for the 2016 PSA.

In its report, Global Witness said that inept negotiation of the 2016 PSA could have cost the country as much as US$55 billion.

The report, titled ‘Sign-ed Away: How Exxon’s exploitative deal deprived Guyana of up to US$55 billion,’ said that ExxonMobil’s aggressive tactics with inexperienced Guyanese officials saw this country getting only 52% of the take compared to global averages of between 65% and 85%. It said that this would see the country losing out on an estimated US$1.3 billion per year. It recommended that Guyana press to have the contract renegotiated to give its citizens a “fair deal.”

“The Guyanese government should renegotiate Exxon’s Stabroek oil licence. The government should seek a share of revenue that equates with international standards, increasing Exxon’s financial obligations such as royalty and income tax payments,” the report recommended, while saying that prior to negotiations, the government should commission an independent evaluation to determine what the country deserves from the licence.

The government had previously rejected the Global Witness report and has insisted that it had entered a “fair” agreement with Exxon.

In the ad yesterday, government said that in 2015 when it entered office, it found that a 1999 Petroleum Agreement and a 1999 Petroleum Prospecting Licence was due to expire in June 2018 and since it had already been renewed two times, by law it could not be renewed again. Exxon’s exploration work could not be completed before the expiry, according to the government.

At the same time, it said, Guyana’s longstanding border controversy with Venezuela was at a critical point. “In May 2015, Exxon announced that it had struck oil, and simultaneously Venezuela issued a presidential decree, stating that Guyana’s maritime area fell within its national waters,” the advertisement said.

“The protection of Guyana’s offshore oil and gas activity in the face of military action by

Venezuela became an urgent matter of national security,” it added.

 “The coalition government determined that it was in Guyana’s best interest to grant a further extension and in 2016 granted the requisite licence with improved benefits, including doubling of the royalty, higher rent payments and annual payments from Exxon for environmental and social programmes,” the advertisement said.

Global Witness had criticised the 2% royalty and other terms but government highlighted that based on a “current assessment” of the agreement, Guyana will “realise US$165 billion over the next 10 years.”

Citing a Rystad Energy report, government said that Guyana’s terms are comparable for other frontier countries. “In the current fiscal regime, the government collects its share through a 2% royalty and a 50% profit oil levy. Rystad Energy estimates that this will give the government 60% of the take from the various projects (government take), while the remaining 40% will go to international E&P companies,” the ad said, quoting from a Rystad report.

However, it has been noted that different parameters can affect a final value and previous analyses by Rystad for different countries have seen signification variation in figures in a short space of time.

In its report, Global Witness said that based on a comparison with oil deals in other countries, Guyana should receive 69 per cent of oil revenue from the Stabroek Block deal, which would be a fair share. It had said that Guyana should get more because the countries cited were for gas extraction and not oil extraction, as is the case here. 

“Under its current Exxon deal, Guyana receives only 52 percent of oil revenues from Stabroek. As outlined in OpenOil’s analysis, some countries like Israel, Mauritania, and Mozambique do allow companies to drill with a government share of revenues around 50 percent. However, these government shares are low because they are for gas extraction, which has smaller profit margins, and not oil extraction, like in Guyana. IMF surveys show that, for oil licenses, a normal government share would be between 65 and 85 percent,” the report said.

Government said that it remains resolute and stands by its decision which it emphasised is to protect Guyana’s interest.