Guyana secured a “fair” contract with oil giant, ExxonMobil. At least that is the point of view expressed by the company’s Country Manager, Rod Henson, who based his pronouncement on the fact that Guyana is new to oil production.
Yesterday, at a Press Conference at the Marriott Hotel, ExxonMobil said that the petroleum agreement that it signed with Guyana is globally competitive for countries at similar stage of exploration.
The Coalition Government entered into an agreement with ExxonMobil on October 7, 2016. That agreement was an improvement on the contract signed in 2012 by the Donald Ramotar Administration.
Under the new contract, there is an increase in annual rental fee from US$240,000 to US$1M as well as an increase of annual training fee from US$45,000 to US$300,000 per year.
There is also a social responsibility/environmental support with an annual fee of US$300,000 per year. ExxonMobil also agreed to a 2 percent royalty up from the initial one percent.
The royalty provides Guyana with increased early revenue and overall government take.
ExxonMobil will mostly report directly to the Minister of Natural Resources as opposed to the Guyana Geology and Mines Commission or the Petroleum Commission.
Article 11 of the contract – which speaks about cost recovery and production sharing – outlines ExxonMobil’s cost recovery is limited to a cap of 75 percent total monthly production. The remaining volume is to be split 50/50 between the government and ExxonMobil.
Article 12 provides for gas to power mechanisms. It says that if gas is in excess of operational needs then ExxonMobil gets five years to conduct a utilisation feasibility study. That gas requires additional infrastructure and market development.
Henson said that gas-to-power is being assessed for gas sales under the petroleum agreement.
The 50/50 that is to be divided between ExxonMobil and the Government of Guyana is not money but actual crude.
Further, Article 14 outlines how government will dispose of its share of oil. It states that Government may request that ExxonMobil markets the government’s share of oil. The government may change from that method, but will need to give a six month notice if indeed it needs to approach ExxonMobil to market its share.
Henson said that this method is often selected by countries new to crude marketing for a period of learning. He said, too, “A process would be agreed to negotiate marketing fees that are competitive, fair and transparent to the government.”
Moreover, Article 15 deals specifically with taxation and royalty, which states that ExxonMobil shall not be exposed to any VAT, excise tax or duty. The company shall, however, pay income tax.
Speaking of this article yesterday, Henson said, “Certain tax exemptions are provided, like corporation tax.” Henson said that this is a very common feature in the oil industry where governments seek to obtain primary value from oil/gas sharing instead of full tax obligations.
Article 17 goes on to deal with domestic market obligation. Domestic market obligations are the responsibility to supply oil or gas to the local market if government entitlement volumes are insufficient.
Henson said that ExxonMobil is open to exploring the viability of sales with any interested domestic buyers without the need for an obligation. He said that such sales, in any case, will benefit the people of Guyana as the same are subject to the payment of royalty and applicable taxes.
Articles18 and 19 deal directly with Guyana’s resources and employment training respectively.
These two articles provide local content obligations to give preference to competitive Guyanese goods and services available on a timely basis in the quantity and of the quality required. They speak as well to the employment of Guyanese sub-contractors in so far as they are commercially competitive and satisfy the contractor’s financial and technical requirements.
There are also requirements for ongoing local content review, reporting and submission of a detailed plan with the Ministry.
Annually, US$300,000 is to be paid to the government to provide for Guyanese personnel training on the job at domestic or overseas institutions, university or college courses.
Article 22 of the contract focuses on foreign exchange control. This is about the banking of profits by ExxonMobil, locally and overseas, and allows ExxonMobil to bank in whatever currency it wishes to.
Article 23 of the contract covers accounting and audits. This is quite straightforward. That article stipulates that ExxonMobil must maintain audit records and the Government of Guyana must always be given access to these upon request. There is also a Force Majeure Clause at Article 24.
Article 28 deals with the Social Responsibility and Protection of the Environment. The operator is committed to operating safely and protecting the environment. Henson said that very clear obligations are contained within the contract, and applicable laws and regulations concerning prevention, and if necessary, remediation of potential environmental impacts from Stabroek operations.
It is Article 33 that provides for the signature bonus. The contract stipulated exactly how the bonus should be handled, in that it must be placed in a bank account that is to be set up based on the instruction of the Minister of Finance.
Henson said that, based on the contract, Guyana’s profit oil and royalty at US$50 per barrel oil price from Liza Phase 1 alone could be over US$1.5B after five years production and over US $7B over the project’s life. He said that the contract stipulated the US$18M signature bonus to be paid to a government-designated account.
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