Home Letters ‘Negotiations’ are not simply a matter of one side dictating terms
Lost amidst the noisy calls for the Government of Guyana to renegotiate the ‘oil contract’ is the meaning of the word ‘negotiate’ and the implications of getting a larger share of oil profits via negotiations now would have on future earnings. Let me elucidate to those who would have us make moves akin to a bull in a China shop.
A massive amount of money was outlaid at their own risk by Exxon, Hess, and CNOOC for the initial exploration activities that led to the discovery at Liza 1; had no oil been found, those billions would have been paid by the shareholders of those corporations, no cost would have accrued to the Government and people of Guyana.
Guyana’s current Production Sharing Agreement (PSA) allows for a 50/50 sharing of the profit after exploration costs and cost of production have been recovered. The PSA caps the recovery of costs at 75 per cent of production thereby allowing all partners to garner income equally while outlay (cost of drilling, administration, building, and operation FPSO, etc) is being recovered. In the near future (especially if the current high price of oil is maintained) those exploration costs will be fully recovered and Guyana will be receiving and selling approximately 50 per cent of the oil produced whilst the consortium of ExxonMobil, Hess, and CNOOC getting around 16.66 per cent each.
The questions that arise from renegotiation are as follows: Is it in Guyana’s best interest to have the costs recovered as quickly as possible or are we better off with lowering the recovery cap. Are those companies and their respective shareholders who risked their capital initially going to be willing/happy to cede a larger share of the oil to Guyana and what would be the implications of forcing such a change on future foreign investments (of any kind) in Guyana.
In my opinion, the faster the costs are paid off the better for Guyana for the following reasons: We are currently building capacity in all sectors especially oil & gas; the economy is already showing signs of overheating and inflation/cost of living red flags are flying, a massive injection of capital has taken place and we are struggling to absorb same; we are at or have exceeded capacity for infrastructural works and further injection of capital will have a deleterious effect. At 12 per cent, our income from oil will exceed US$1 billion per annum and continue to grow, this amount compliments our traditional economy and aids measured progression. There will be unspent money from the 2022 Budget to be returned to the Consolidated Fund because of exceeded capacity, so why the haste for more money now?
Editor, surely, we all know that ‘negotiations’ are not simply a matter of one side dictating terms to the other unless we go down the Burnham/PNC route of ‘nationalisation’ (we all know how that ends). What would the oil consortium get in return for giving Guyana more? And if the answer is less than they already have, then why would they (or anyone) come to the table. Greed is original sin and should ExxonMobil et al signal a willingness to ‘negotiate’ I would urge extreme caution to my fellow Guyanese and remind you all to be careful what you wish for as it may well come through.