…says investment under contract terms already commenced
By Jarryl Bryan
The polarising issue of the 2016 oil contract was recently resurrected at cabinet level, but when it comes to renegotiating the agreement between the Government of Guyana and ExxonMobil, the oil giant is a firm believer in the sanctity of contracts.
ExxonMobil’s senior Director of Government and Public Affairs, Kimberly Brasington
When contacted for a comment on the new development, ExxonMobil’s senior Director of Government and Public Affairs, Kimberly Brasington, noted the importance of respecting contractual provisions in the oil and gas, or indeed, in any other industry.
“The 2016 Stabroek Petroleum Agreement is based on the Government’s terms and conditions of the 2012 model contract with minimal revisions. Investment has commenced for the development of Liza Phase 1 under the terms agreed and under an approved petroleum production licence,” she explained.
According to Brasington, the 2016 agreement is “actually a globally competitive one relative to countries with a similar oil and gas profile.” She noted that the agreement’s provisions are in line with the present Government opting to garner revenue from profit oil and royalty, rather than a tax regime.
Exxon’s operations in the Stabroek block
“The Stabroek Petroleum Agreement is globally competitive for countries with a similar oil and gas profile, which in the case of Guyana was an unproven basin,” she related. “According to a Wood Mackenzie study, state share, or government take, is generally lower in frontier plays than in established areas.”
Brasington added that this was because “governments need to incentivize companies to undertake high risk exploration in the absence of a proven hydrocarbon system. For Guyana, which is a frontier area, Government’s take at $60 per barrel is in the middle of the range of all jurisdictions evaluated in the Wood Mackenzie study.”
Wood Mackenzie is a United Kingdom-based equity research company. Its consultancy operations and research range from studies in renewable energy and chemicals to mining and oil.
The contract
The contract was, on October 7, 2016, finalised between the coalition Government and ExxonMobil and its partners in the Stabroek block.
However, ExxonMobil and its partners in the Stabroek block were able to secure exemptions from paying Corporation, Excise or Value Added Tax on their 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.
In light of comments that Guyana undersold itself in regard to the petroleum agreement, Natural Resources Minister Raphael Trotman has repeatedly defended the Government’s deal.
According to the Natural Resources Minister, the team used the contract model that was prepared after negotiations with US oil company Anadarko Petroleum Corporation back in 2012. Trotman said the team built on that contract, deciding against generating a new one.
That did nothing to mitigate the scepticism of sections of society, as there have been incessant criticisms of the terms agreed upon. Although Government has managed to get two per cent royalty on gross earnings and 50 per cent of the profits of the oil proceeds when production starts in 2020, many political, financial and social commentators have claimed that the percentage is too low.
Earlier this week, President David Granger revealed that the contract was before cabinet again, but there was no immediate plan to review it.
Opposition Leader Bharrat Jagdeo, who has repeatedly criticised Government for renegotiating a bad oil deal, told a media conference on Thursday that his party would support changes that would benefit Guyana where the Production Sharing Agreement (PSA) with ExxonMobil is concerned.
