Oil Bonuses

After the payment by Exxon of US$18M into a specially created secret account at the Bank of Guyana at the request of the Government of Guyana, ExxonMobil’s country Manager of ExxonMobil, Rod Henson declared that the payment was a “bonus” which is “customary and normal” in petroleum agreements signed between oil companies and governments upon the clinching of the deal.
He said: “In this case, this agreement was finalised and negotiations were done and executed. We did pay an 18 million US dollar signing bonus to the Bank of Guyana to an account that is owned by the Government of Guyana and designated by the Ministry of Finance, not to an individual but to a government bank account designated by the Ministry of Finance.”
It is true that bonuses are “customary and normal” in the oil business and as a matter of fact, there are several types of “bonuses” of which the “signature bonus” is only one. “Production bonuses”, for instance, are even more common and act as payments made at various stages of production. We have been told that the contract with ExxonMobil will be made public by the end of this month – which is less than two weeks away and this should reveal if there are production and other bonuses in store for Guyana.
However, it is clear for several reasons that there needs to be a higher level of transparency in the negotiation of all the terms of the Production Sharing Agreements, and not only bonuses. After the APNU/AFC Government took office coincident with the ExxonMobil oil strike, the government did mention it was renegotiating the contract signed by the PPP in 1999 when there petroleum deposits were simply a conjecture. It was assumed that the government in 2016 would have used the opportunity after a massive oil find was confirmed to drive a hard bargain the International Oil Company (IOC).
The later announcement that the royalty to Guyana was increased from 1% of gross revenues to merely 2% stunned most analysts since the norm in comparable petroleum producing countries in Africa at our stage of development was between 7 to 12%. Bonuses were a significant innovation since it allowed the country, as the owner of the resource, to have funds up front which could be used for development projects, and which do not emanate from revenues.. In the US, signature bonuses are typically 27% of expected revenues.
To enhance transparency, it has become the new norm for countries to execute a bidding programme to solicit IOC’s to exploit possible petroleum fields. Bonuses may arise as part of the bidding process for these new ventures and can be extremely lucrative when the certainty is high when a significant oil find in the offing. Only two weeks ago, Brazil received the largest total signature bonus in history of approximately US$1.2B. A total of 287 exploration blocks were auctioned across nine basins with an estimated total of 50 billion bbl in place, both offshore and onshore. ExxonMobil paid US$701M for its successful bid.
In the Guyana, scenario, ExxonMobil was not bidding for prospective oil, but for a field in which at least 3.4 billion bbl was confirmed, and more exploratory wells scheduled. At 1/16 of the Brazil estimates, the Bonus for Guyana that the Guyanese negotiator, Minister Raphael Trotman should have asked for should have been at least 1/16 of US$1.2Billion or US$75million. The Guyanese find, after all, was the largest for Exxon in 2016 after having to abandon reserves in the Arctic and Canada.
Back in 2007, the Chinese company Sinopec paid a US$1.1-billion signature bonus to Angola for each of two blocks in addition to US$200M for a publicly declared fund for “social projects”. Guyana received a mere US$18M bonus – of which US$3M is supposed for “training” – is pathetic and a black mark against Raphael and his negotiating team.