…Ram questions failure to apply section of Petroleum Act …PSC decries little benefits for local businesses …stresses need for better negotiators for future contracts
With the release of the oil contract between Guyana’s Government and US oil giant ExxonMobil, a perusal of the document reveals Guyana missed out on an opportunity to acquire a stake in the company’s venture despite provisions in Guyana’s laws for such a move.
After a review of the contract, Chartered Accountant Christopher Ram was on Friday critical of what he called a “missed golden opportunity”. In his writings, he questioned the rationale behind Natural Resources Minister Raphael Trotman not applying the law to the oil company.
The Petroleum Exploration and Production Act, Chapter 65:10 of Guyana provides for the Government’s side to work out terms and conditions with an oil company to acquire an interest in its venture in local waters.
Section 22 (2) of the Act states “There may be included in a petroleum prospecting licence provision with respect to the exercise by the State, or any agency thereof identified in the licence, of an option to acquire on stipulated terms, or on terms to be agreed, an interest in any venture for the production of petroleum which may be carried on in any block or blocks to which the licence relates.”
Section 36 (1, VI) reiterates that a petroleum production licence will not be granted unless the exercise of the State’s option is completed to satisfaction. Exxon was granted a renegotiated agreement in 2016 and its production licence for the Liza project in June of last year, but the provision in the law was never applied.
“Trotman missed a glorious opportunity to apply the provision of Section 22 (2) of the Act to ensure that Guyana had a stake in the entity,” Ram stated. “Imagine the leader of one of this country’s leading political parties deciding not to take up equity in companies exploiting a valuable, non-renewable resource.”
According to Ram, Minister Trotman must surely know that the Government would not have had to pay upfront for its share of equity and could have elected to exercise a carrying interest. “Is this sane or irresponsible?” Ram, a vocal critic of Government’s handling of the sector, questioned.
Calls by this publication to Minister Trotman on the issue went unanswered.
The section of the law which Government failed to enforce on the oil company
PSC disappointed
Meanwhile, the Private Sector Commission (PSC) also lambasted the deal. Among the concerns it expressed on Saturday is the fact that local content and ring fencing were poorly addressed in the agreement. It stressed the need for Government to hire better negotiators for future contracts.
“We were expecting that greater benefits would have accrued to local businesses. This, we find, is sadly lacking. With respect to the International Monetary Fund suggestions regarding provisions for exploration and developmental costs, we find that the ring-fencing provisions have not been addressed. As a result, Guyana will be left to bear the costs of unsuccessful exploration.”
“A matter of great interest also is the fact that given the early stage of development, Guyana does not have the right to re-negotiate the terms of the agreement. This is specified in Article 32, Stability of Agreement Clause, of the contract. We are concerned, since this agreement encompasses the entire Stabroek Block, an area of 6.6 million acres of water with 3.2 billion barrel of equivalent oil (BOE) so far.
Exxon’s operations
With the projected massive oil discoveries, the Commission believes that there should be increased flexibility given to the Government of Guyana, to ensure a fair and equitable deal on both sides.”
The body noted that the cost of energy is a primary limitation to the expansion of business and growth in Guyana. But taking the agreement into account, the PSC stated that nothing in the agreement indicates that with Guyana owning such large oil reserves, this will translate into reduction of the costs of energy to Guyanese.
“The business sector and general populace of Guyana deserve to benefit directly from the abundance of oil at its disposal and we look forward to seeing future agreements for other blocks offshore include provisions with greater benefits to Guyana and its people.”
“We also expect that, for all other blocks offshore, the agreements with operators/contractors will consist of provisions that will ensure Guyana receives more royalty, rents, training and development for Guyanese and better local benefits for all Guyanese through the enlisting of the services of world class negotiators who can competently negotiate with major oil companies,” the group stated.
The agreement
While Guyana did not get this law enforced, ExxonMobil and its partners in the Stabroek block got exempted from paying Corporation, Excise or Value Added Tax on its earnings from petroleum.
Article 15.4 of the renegotiated contract 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.
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.
