Exxon contract released, finally

…oil giant to receive sweeping concessions
…no VAT, corporation or excise taxes; Gov’t to foot income tax payments
…Govt barred from modifying contract

By Jarryl Bryan

After much public pressure, the contract renegotiated between ExxonMobil and the Government of Guyana has been released. While it contains clauses for the company to put aside millions for local content, it also grants sweeping tax concessions.

The contract was signed in June 2017 between the coalition Government, ExxonMobil and its partners in the Stabroek block. In Article 15 of the contract, Exxon is exempted from paying Corporation, Excise or Value Added Tax (VAT) on its earnings from petroleum.
Article 15.4 also provides for the Government itself to pay the company’s income tax. To facilitate this, the oil company has to submit tax returns to the Government.
That’s not all. Article 32 stipulates that Government cannot modify the contract or increase any fiscal obligation the company has.

This therefore puts a cap on the taxes, royalties, duties, fees or charges outlined in the contract. Government also has to compensate the operator if a change to existing laws causes loss of revenue for the company.
According to Article 32.3, “If at any time after the signing of this agreement there is a change in the laws of Guyana… and such a change has a materially adverse effect on the economic benefits, including those resulting from the fiscal regime provided by this agreement… the Government shall promptly take any and all affirmative actions to restore the lost or impaired economic benefits to contractor, so that contractor receives the same economic benefit under the agreement that it would have received prior to the change in law or its interpretation, application or implementation.”
The contract goes on to say: “The foregoing obligation shall include the obligation to resolve promptly, by whatever means may be necessary, any conflict or anomaly between this agreement and any such new or amended legislation, including by way of exemption, legislation, decree and/or authoritative acts.”
But there are provisions for Exxon to fulfil its corporate social responsibility. This includes a fund for social and environmental projects. Exxon has to contribute US$300,000 per year to this fund. The sums roll over, and the company, together with Government, will determine which projects to fund.
The contract sets aside another US$300,000 per year to ensure Guyanese personnel are trained at local or overseas universities and conferences. There are also provisions for a continuous review of local content.
More money
At a press conference where the release of the contract was announced, Natural Resources Minister Raphael Trotman expressed “bemusement” at the suggestions that Guyana should have taken a harder line in negotiating a better deal.

Throwing blame for the content of the renegotiated contract at the feet of the former Government, Trotman noted that the Government’s priority was not to negotiate for more money for Guyana. He therefore questioned those making such calls.
“There has been much said about the size of the block, and that yours truly gave away Guyana’s birth-right. For the reasons I stated earlier and for the strategic importance of having this company develop the resources on our behalf, we sought to maintain the exact proportions of the grant that had been given by the PPP Government. We did not take a single millimetre, nor did we add a single millimetre to what had already been given to Exxon,” he explained.
“So the claim about us giving away the resource and losing, I am amazed at (it). The value of the resource is already about US$106 billion, with Guyana being entitled to half of that. It is bemusing to understand this clamour for more money when in fact we should be more concerned about how we will manage this resource. How are we going to protect this resource? Because there are going to be others who will want to share it… sometimes without prior consent,” he declared.
While the contract was derived from the 1999 agreement, Opposition Leader Bharrat Jagdeo has, in the past, defended this by pointing out that the generosity of the provisions were meant to attract a large-scale investor in the sector.
“Let me first say that Guyana should be thankful to Janet Jagan. In a similar situation as we had in 1999, I would have probably done the same… At the time when Janet gave the blocks out, we did not have many takers,” Jagdeo had said in September of this year. “The fact that there are so many blocks remaining also proves that we did not have many takers. In 1999, Guyana was considered as a high-risk.”
Guyana’s high risk status has been changed since ExxonMobil’s 2015 oil find in the Stabroek Block — and before the renegotiated contract. In May of that year, Exxon confirmed that more than 295 feet of high-quality oil-bearing sandstone reservoirs had been encountered at its Liza 1 exploration well.
In late June 2016, Exxon’s drilling results at Liza 2 revealed more than 58 metres of oil-bearing sandstone reservoirs in Upper Cretaceous formations. The well was drilled to a depth of 5,475 metres at 1692 metres water depth. Drilling results confirmed recoverable resources to be between 800 million and 1.4 billion barrels of oil equivalent.