Exxon’s problems are mounting. The company is facing a litany of lawsuits over allegations that it denied knowing about the findings of climate change scientists who are contended that the oil giant was aware a long time ago about the environmental dangers associated with the use of fossil fuels. It is also being sued by the state of a man who died in an oil field death in 2010, according to an Associated Press report.
Interestingly, ExxonMobil is playing the victim. It is claiming that there is a conspiracy against it.
In Guyana, Exxon has launched, what it no doubt believes is a public relations counteroffensive. But this offensive is even poorer than that of the government of Guyana, which has failed to demonstrate that it knew what it was doing when it negotiated the Petroleum Agreement of 2016.
In light of these developments, and the possibility of ExxonMobil losing, Guyanese must ask themselves whether Exxon is likely to unload its interests in offshore and deep sea oil production in Guyana.
What is going to chase ExxonMobil out of many countries is not renegotiation of its contract. ExxonMobil is reeling from the effects of the numbers of multi-million-dollar lawsuits that it is facing.
If these lawsuits are successful, they can deal a deadly blow to Exxon’s global operations, including here in Guyana. It needs to be asked whether Guyana was aware of the legal challenges against ExxonMobil when it began its negotiations and whether Guyana’s negotiators did not think that handing the oil company more than half of the blocks in Guyana’s offshore waters, was not a risky venture.
ExxonMobil is now reporting that it added a total of 2.7 million barrels of oil to its stock of proven reserves in 2017. Guyana was listed amongst that grouping, but so too is Abu Dhabi, Mozambique and the United States. ExxonMobil, therefore, is not as dependent on Guyana as some may feel it is. It therefore may not necessarily be in a hurry to proceed with development in its Stabroek block in Guyana’s waters. The evidence points to ExxonMobil being in the phase of building up its reserves.
Therefore, Guyana has a narrow window in which to demand that ExxonMobil returns to the negotiating table to renegotiate the lopsided deal. Guyana does not have an eternity to try to get a new deal. It has to do so quickly by striking when the iron is hot.
The criticisms of its contract with Guyana are mounting. The rate of royalty has been lampooned. The fiscal concessions contained in the agreement have been described as too generous. The Stability Clause has implications for national sovereignty. The tax regime deprives Guyana of an important source of profit oil revenues. Guyana’s has to bear cost recovery but its oversight of Exxon’s spending is seriously impaired under the agreement.
Cost recovery has been capped at 75%, when for a long-term investment a rate of 50% would have been ideal. The high rate of cost recovery means that despite Guyana gaining a reasonable 50-50 split on profit oil, the cost recovery would have already eaten into cost oil.
The greatest insult is that even the Minister responsible for petroleum in Guyana has to give Exxon seven days’ notice before he can visit the rig. Exxon’s agreement with Guyana will not transform the country, yet it is said that it has been handed fifty five per cent of the exploration blocks. The agreement is poor on too many fronts.
Some people are suggesting that Guyana can benefit if Exxon doubles its projected production thereby allowing Guyana’s benefit to also double. But if production doubles, it means that the oil reserves will be depleted faster, leading Guyana to be in a situation where it gets short-term gains for long term losses.
Some critics in Ghana are describing the deal they have with Exxon, which guarantees a 10% royalty to that country, as being the worst oil deal ever. They obviously have not read the terms of the agreement between Exxon and Guyana. They should.
Guyana needs to use this opportunity to ask ExxonMobil to return to the negotiating table and to revise some of the conditions of the contract. It is Guyana’s interest to do this in light of the lawsuits faced by the company.
If ExxonMobil does not go to production in 2020 because of its legal problems in the United States, Guyana will end up being stuck permanently with a contract which is not going to deliver the oil boom which many Guyanese expect.
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