Even though USA oil giant ExxonMobil is gearing to produce Guyana’s oil by 2020, and a binding contract is in place, it still doesn’t mean that Natural Resources Minister, Raphael Trotman, can visit the entity’s operations whenever he pleases.
According to the Production Sharing Agreement (PSA) that he and his Government signed, Trotman must give ExxonMobil seven days notice before his visit. He is also expected to carry out such a visit at his own expense.
This is enshrined in Article 9 of the contract which speaks to records, reports and information.
Article 9 (e) states: The Minister, through duly appointed representatives, upon providing the contractor with at least seven days notice, shall be entitled to observe the petroleum operations conducted by the contractor at his sole cost and expense and at all reasonable times to inspect all assets, records and data kept by the Contractor relating to such petroleum operations. In the exercise of such rights under this paragraph, the Minister shall not unduly interfere with the Contractor’s petroleum operations under this agreement.”
Trotman recently came in for criticisms from several quarters for having signed on to an agreement containing such a clause. Political commentator, Ramon Gaskin recently noted that he finds this cause particularly troubling.
He noted, “Generally in this country, if the tax man wants to visit your place, he visits when he is ready. It is therefore beyond comprehension why Guyana’s minister would have to give notice to an operator that is bringing up oil and gas that belongs to the state.”
Gaskin also highlighted other flaws within the contract. He was quick to point out that the APNU+AFC Government had a golden opportunity to correct a grave wrong that was committed by the PPP Administration in 1999.
During the PPP’s time, ExxonMobil was given 600 blocks. This is ten times more than what the law stipulates. The nation’s rules and regulations also specify that at every request for a renewal, the company is expected to relinquish half of the oil blocks it started with. But the PPP made an adjustment to the contract, thereby allowing the company to hold on to the 600 oil blocks.
In the new agreement that was signed last year under the Granger Administration with ExxonMobil, Natural Resources Minister, Raphael Trotman failed to address or redress the aforementioned problem.
Gaskin is also of the opinion that the Government in missing such an opportunity has allowed ExxonMobil and its affiliates to have control of some of the main oil producing blocks offshore Guyana.
Gaskin was also critical of the fact that the Government is yet to release the Bridging Deed. While the Government has released the petroleum contract it has with ExxonMobil, the Bridging Deed was one of the key documents it failed to make public. The purpose of the Deed is to replace the 1999 Agreement and the 1999 Petroleum Prospecting Licence.
Gaskin reminded that former President Janet Jagan signed the 1999 Agreement in violation of the Petroleum Exploration and Production Act (the Act) to the extent that the company (Esso Exploration and Production Guyana Limited) was granted approximately 600 blocks instead of the 60 blocks permitted by law.
He said that the 1999 Agreement and Prospecting Licence appears to have been contained in a single package and included in it is a full description of the blocks and a map of the area allotted to the oil company. However, the 2016 Agreement merely states that a Petroleum Prospecting Licence was granted for an initial period of four years.
With the Bridging Deed not being published, Gaskin said that the Government is operating in contradiction of the nation’s petroleum laws.
Section 16(2) of the Petroleum Exploration and Production Act states: “The Minister, shall, as soon as may be practicable after a licence has been granted, cause notice of that fact to be published in the Gazette stating the name of the licensee and the situation of the land in respect of which the licence has been granted.”
With such behaviour, Gaskin argued that the Government has lost all moral ground to criticize anyone about secrecy. The commentator was also critical of the loud praise the administration gave itself for having increased the royalty from one to two percent. He noted that there are several African oil and gas agreements which show that there are more favourable royalty terms for the country. Gaskin stressed that the contract and its provisions are essentially generous to the contractor.
The issue of the US$18M signing bonus did not escape Gaskin’s radar. The political commentator noted that the Constitution is pellucid about where monies belonging to the state are to go—The Treasury.
Gaskin also questioned the bonus received as he said that, “the number sounds funny to me…”
He noted that in the end the contractor got itself a sweetheart deal. In this regard, he pointed to the issue of cost recovery which was raised by the International Monetary Fund (IMF) in its most recent report on Guyana’s future and the coming of oil.
The IMF said when there is a cost recovery limit and the minimum government share of the profit is greater than zero, a royalty is obviously embedded on the agreement it would have with the oil operator.
The Fund explained that in Guyana’s case, the cost recovery limit as set out in the contract is 75 percent. This means that on the annual earnings from the production oil, the contractor is allowed to recover 75 percent of his expenses. This means that there is 25 percent of the profit remaining to split evenly between the operator and the host country.
The Fund said that the Government is ultimately guaranteed to receive a minimum of 12.5 percent of the total production. When the two percent royalty rate is added, Government gets 14.5 percent of the production.
Gaskin was quick to note that there are countries with more favourable provisions than this. Given the aforementioned and other factors, the Chartered Accountant said that the contract is reflective of a terrible deal and one that is illegal given the instances in which it is in conflict with the laws of Guyana.
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