By Abena Rockcliffe-Campbell
Just one year after Guyana surreptitiously accepted US$18M from oil giant ExxonMobil as a signing bonus, the same company handed Brazil a US$700M bonus.
This reality has raised many questions in the minds of cynics who worry that Guyana is going down a very bad road, one from which the nation might not be able to recover.
In the oil industry, signature bonuses are given to countries after the completion of a Production Sharing Contract (PSC) with an oil company. In many cases, the PSC prescribes the quantum of the bonus or how it is supposed to be paid.
For example, the Nigerian PSC contains signature and production bonuses. This bonus is a fixed fee which is paid by the oil company to the Nigerian government at different stages of the project. Signature bonuses are paid immediately after the completion of negotiations and signing of the PSC while production bonuses are paid when the production from a specific contract area reaches a particular threshold.
The signing bonus has nothing to do with whether a country is going for first oil or if it has been producing oil for ages, it is all about the negotiation. Of course negations are made based on strengths and weaknesses. Without a doubt, the fact that ExxonMobil has already estimated over one billion barrels of oil in the Liza field alone is a major strength of Guyana. In the end, only US$18M was negotiated. In September, Brazil secured US$1.2 B from a few oil companies. ExxonMobil teamed with Petrobras, Brazil’s national oil company, for the auction. ExxonMobil doled out the highest signature bonus in that round. Granted, this is said to be the highest signing bonus in history but is still a very far cry from what Guyana secured.
“International investors busted out their chequebooks on September 27 and pledged record amounts for the rights to develop Brazil’s oil and gas riches. The country’s 14th bid round for oil and gas exploration and production blocks drew more than $1.2 billion in signing bonuses from energy companies. It is the largest sum ever for a Brazilian oil auction, according to industry regulator the National Agency of Petroleum, Natural Gas, and Biofuels (ANP).”
Former Chairman of Alliance For Change (AFC), Attorney at Law Nigel Hughes thinks that Guyana could have done much better if only the nation had gone to the table prepared.
In a social media post, Hughes said, “One year after general elections the newly elected representatives of our dear Republic determined that they were possessed of the requisite skills all on their own to enter into negations with the biggest oil company on the planet, about the terms of the agreement which were previously agreed.”
Hughes noted that the bonus was negotiated and handed over after the news of the size of Liza was already in excess of 1.4 billion barrels and counting. “I believe the goodly Minister of Finance recently said we were ‘de-risked.”
Hughes questioned, “Did anyone bother to conduct the most rudimentary of checks to ascertain the underlying principles when assessing signing bonuses especially after you have a find the size of Liza with the promise it then held?” He continued, “Did we collectively bother to find out whether two per cent royalty was remotely close to what was acceptable in the industry in 2016.” Hughes said that the US$18M is but pittance even in the context of Guyana being the poor nation it is simply because the resource is worth much, much more. He said, “And really US$18M, even for Guyana this is not a significant sum for the capital assets of some of private sector giants. So exactly what was the basis on which these negotiations were conducted?
Did we have a “Best Alternative to a Negotiated Agreement (BATNA) when we embarked upon these negotiations???” “How is it possible that 250 years after the Berbice Uprising, 179 years after the abolition slavery and 100 years after the end of indentureship, we all on our own end up voluntarily accepting US18M bonus and 2% royalty on a 2.4 billion barrel field when we knew the industry experts were saying we were potentially sitting on a 10 billion barrel field.” Hughes said, “Small change or no change, we have drawn a very bad card. Better must come.”
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