Latest update April 23rd, 2024 12:59 AM
Jan 01, 2019 News
The year 2018 saw a number of worrying developments in Guyana’s efforts to prepare for the oil and gas sector. Below are just a few of the major stories that Kaieteur News broke on the oil sector.
US$900M pre-contract costs riddled with expenses for unsuccessful wells
One of the most topical matters in the oil and gas industry is the “astronomical” pre-contract cost that Guyana has to pay to ExxonMobil. This cost has amounted to some US$900M.
Kaieteur News understands that much of the pre-contract cost includes expenses for unsuccessful wells. An international expert explained, “Your country would have been saved from this burden if only the government had protected you guys by employing ring-fencing.”
When ring-fencing applies at a contract area or project, a loss made at one project cannot be transferred to another area/project. Also, all costs associated with a given block or license must be recovered from revenue generated within that block: the block is ring-fenced.
The objective of ring-fencing is to protect the level of current tax revenue. Without ring-fencing; Guyana will have to pay—from the revenue derived from Liza and other oil-bearing wells—for the dry holes. Usually this cost is borne by the Operator / Oil Company.
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Exxon’s EIA reveals…
It could take Guyana a decade or more to fully recover from an oil spill
If an oil spill occurs due to ExxonMobil’s operations, it could take a decade or more for the country to “fully recover.”
This gloomy possibility was buried deep in the operator’s Environmental Impact Assessment (EIA), which consists of 1418 pages. The EIA which examines how Exxon’s operations would affect the environs was prepared by the Environmental Resources Management (ERM).
In the EIA, the international company uses phrases like “highly unlikely” and “very low” throughout lengthy paragraphs to convince readers that the chances of an oil spill occurring are quite slim.
But when ERM had done its assessment to determine the implications of Exxon’s operations offshore Guyana, it was taking into consideration that the country would be producing 100, 000 barrels of oil per day. Those projections have changed significantly. Today, Guyana is estimated to produce about 750,000 barrels of oil per day by 2025.
But even at 100,000 barrels of oil per day, ERM advised that an oil spill is possible.
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Exxon’s Auditing deadline and cost recoverable items for review – Energy Dept. Head
In pursuit of a model Production Sharing Agreement (PSA), issues such as auditing deadlines and recoverable costs by oil firms would be reviewed in an effort to ensure that they are in keeping with international best practices.
This was confirmed by head of the Energy Department, Dr. Mark Bynoe.
Dr. Bynoe said, “What we are seeking to do with the model PSA is not to present an instrument which would necessarily be used as a one-stop shop. What we are seeking to do is to develop a best practice map…
“We are looking to take from global best practices, what is best suited and we negotiate that. What the model PSA would do is to have the best practices incorporated …and provide scope for negotiations going forward.”
Pressed on the issue of the auditing deadline and the cost recoverable items, Dr. Bynoe said, “The Department will look at all global best practices in every respect. So whether it be recoverable costs, whether it be in terms of profit oil and sharing, all of those elements would be looked at.”
EPA $624M Budget does not cater for oil preparations
The Environmental Protection Agency (EPA) will be one of the key regulatory agencies in Guyana’s petroleum sector. However, the agency’s 2019 budget does not cater for oil preparations. This was confirmed with the EPA’s Head, Dr. Vincent Adams.
During an exclusive interview with this newspaper, the EPA Head said he does not have the human or financial resources needed for the proper management of the oil sector. In fact, the agency does not even have the human resources needed to be an effective regulatory body. In this regard, Dr. Adams said that currently, he has a staff of 97 officers. But for the EPA to be efficient, it needs a total of 262.
Further to this, Dr. Adams said that the agency is continuously borrowing the equipment of other ministries to do its work. It is also unable to do proper monitoring due to its poor fleet of vehicles.
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Guyana has no need for Merrill Lynch – Dr. Mangal
–says firms like these only bring gimmickry, false hopes
Former Petroleum Advisor to the Government, Dr. Jan Mangal, is of the firm view that Guyana has no need for firms like Merrill Lynch. In fact, the Oil and Gas Consultant said that such firms only bring gimmickry and false hopes.
His comments in this regard come on the heels of a publication by this newspaper on Sunday as it relates to the entity’s troubling past. Kaieteur News exposed the fact that Merrill Lynch has been found overcharging clients as well as misusing clients’ money for their own purposes.
For these and other reasons, Dr. Mangal in one of his recent social media posts insisted that there is no need for Guyana to use any of these firms to manage its Natural Resource Fund.
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National Oil Spill plan to be completed by mid-2019- EPA Head
The National Oil Spill Contingency Plan, one of the most critical documents that are supposed to be in place for any emerging petroleum producer like Guyana, will be ready by mid-next year. This is according to head of the Environmental Protection Agency (EPA), Dr. Vincent Adams.
During an exclusive interview with Kaieteur News, recently, Dr. Adams noted that the EPA had a chance to review the draft plan and several comments were returned to the Civil Defence Commission (CDC) for consideration.
Dr. Adams described the Oil Spill Contingency Plan as “a work in progress,” while noting that it needs a lot of details. The Environmental Engineer is also of the opinion that a proper risk assessment will be needed for the plan. He said that the risk assessment will identify the areas that are most vulnerable to an oil spill and the far-reaching effects of such an eventuality.
The EPA Head said that the CDC may wish to hire someone to do the assessment, since it is a technical area, and the document will be a most important one for Guyana’s oil sector.
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Three years later…
Guyana without a single completed policy or modernized legislation for oil sector
To ensure Guyana is able to transform its oil wealth into a blessing, the coalition administration promised, since 2015, that a number of polices would be developed, and sector specific laws updated and drafted where necessary.
But after three years of making this commitment, not a single policy has been completed or a piece of legislation updated.
Minister of State, Joseph Harmon, had noted some months ago that all matters (inclusive of policy and legislative reviews) relating to the oil sector would be dealt with by the Energy Department which is headed by Dr. Mark Bynoe.
When contacted on the issue at hand, Dr. Bynoe acknowledged that indeed, many of the promised policies are incomplete and it is highly unlikely that this position would change before or on December 31, 2018.
***
Demand comprehensive insurance from all oil companies -World Bank
Oil spills can result in long term damage to a nation. In some cases, the effects are irreversible. Considering this, international bodies have stressed on the need for regulators to ensure oil companies have “comprehensive” insurance that provides coverage for the eventualities that may arise from their operations.
One of the many advocates on this matter is the World Bank, one of Guyana’s development partners. According to the organization, it is expected that oil companies take out insurance for their operations in any country.
However, the World Bank warned that operators have often sought insurance which only covers certain activities. These may include third party legal liability and control of wells, re-drill, and cleanup of sudden and accidental pollution from a well out of control. It cautioned that industry regulators must ensure that an operator’s insurance covers every possible eventuality since “for some operators, their insurance excludes blowout or subsurface pollution or below-wellhead risk.”
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Increased Scrutiny of Development Plans for oil sector a small step in right direction – Ram
The decision of the Energy Department to increase its scrutiny of ExxonMobil’s Field Development Plan (FDP) for the Liza Phase Two Project marks a small step in the right direction. This was the comment of Chartered Accountant and Attorney-at-Law, Chris Ram.
Ram told this newspaper that he welcomes the steps by Government to impose some kind of order in the oil and gas sector and “bring an end to this culture where Exxon could do as it feels.”
Be that as it may, the Chartered Accountant who has written extensively about the failings of the government in this sector, expressed concern that at least one of the horses has already bolted and that is the Liza Phase One FDP. He insisted that every effort must be made to rein it in.
Ram said, “It must be subject to the same degree of accountability and we need to do the work that we ought to have done. It is not too late. We still have 20 months to go and we have much at stake…But that is not to take away from the fact that I welcome that something is being done by the government. It is a little step in the right direction.”
Audit Office increases capacity building efforts to scrutinize oil
The Audit Office of Guyana is moving fast ahead with a number of capacity building exercises so that it can be in the best possible position to scrutinize the oil and gas sector.
This was confirmed by Auditor General, Deodat Sharma. He was at the time, delivering remarks at the handing over of his 2017 report to House Speaker, Dr. Barton Scotland in one of the Parliament’s committee rooms.
According to the official, the Audit Office through a partnership with the Canadian Executive Services Organization (CESO) will be engaging in several capacity building initiatives. He said that this will be carried out with the assistance of Canadian, namely Mr. Daniel Barchyn – Senior Executive and Professional Engineer with over 38 years experience in the energy industry.
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Register to be created to identify politically exposed persons in extractive sector-GUY-EITI
The local chapter of the Extractive Industries Transparency Initiative (EITI) is working towards creating a register that will be able to identify all politically exposed persons benefitting from the extractive industries.
This was confirmed with head of GUY-EITI, Dr. Rudy Jadoopat.
In an interview with Kaieteur News, Dr. Jadoopat said, “By January 2020, it will become compulsory for all EITI candidates to know the true beneficiaries of companies in the extractive sector… As such, we are creating a beneficial ownership roadmap which will show how the Guyana chapter intends to achieve this. That roadmap is on our website.”
The GUY-EITI Head noted that while there is nothing illegal about persons in high office having relationships with companies in the extractive sector, but for the purpose of transparency, this must be known.
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Int’l tax agency to sharpen GRA’s skills in ringfencing, transfer pricing issues in oil sector
The Guyana Revenue Authority (GRA) is gearing for a round of meticulous training from the Inter-American Centre of Tax Administration, an international agency that is versed in detecting any petroleum scheme used by oil operators.
This was confirmed with GRA’s Commissioner General, Godfrey Statia.
Kaieteur News understands that the Centre will provide GRA with a general overview of the oil and gas industry, information on tax regimes and tax models. As it relates to tax and contractual issues, GRA will be given a crash course in tax and contractual compliance, commodity pricing, ring fencing and transfer pricing.
Other issues to be discussed include: tax administration structure and procedures, tax risk assessment and evaluation and tax audit procedures.
Govt. allows ExxonMobil to guess its way with environmental work
ExxonMobil is still to carry out real evaluations about how its operations offshore Guyana can impact the environment and possibly bring great harm to locals. Even more alarming, the company is yet to even meet with Guyana’s indigenous people living in areas within Region One.
These people are most likely to be affected. Nevertheless, the government and its agencies continue to give full support to the oil giant.
During an exclusive interview with Kaieteur News, Arjoon recalled that she highlighted the need for more work to be done by ExxonMobil since the beginning of 2018. She said that it is quite unfortunate that just about a year has passed and things remain the same.***
Govt. will allow Bar Association, Media, Transparency Int’l on oversight committee for oil money
The Natural Resource Fund Bill which was recently tabled in the National Assembly by Finance Minister, Winston Jordan, paves the way for the creation of a “Public Accountability and Oversight Committee.”
This body, which will have representatives from the Media, the Guyana Bar Association and Transparency Institute Guyana Inc. (TIGI), will be responsible for monitoring and evaluating the compliance of the government and other relevant persons when it comes to the principles of transparency, good governance and international best practices, including the Santiago Principles, when using the Natural Resource Fund.
It will also be tasked with providing independent assessments on the management of the Fund and the utilization for withdrawals from the Fund.
***
Two Exxon offshore contractors jailed for bribing govt. officials
One of ExxonMobil’s prime contractors is SBM offshore, a Dutch company. Exxon awarded billions of dollars to this firm, so it can build and maintain a Floating, Production, Storage and Offloading Vessel (FPSO) that will operate in the Stabroek Block.
But the Wall Street Journal reported that two former executives of the Dutch oil-services firm were sentenced to prison for violating U.S. foreign bribery law.
The Wall Street Journal reported that Anthony Mace was SBM’s Chief Executive Officer from 2008 to 2011. Mace was sentenced to three years in prison and was ordered to pay a US$150,000 fine. Robert Zubiate, a former SBM Offshore sales executive, received 30 months in prison and has to pay a $50,000 fine. They were sent to prison on Friday.
They each pleaded guilty in November 2017 to one count of conspiracy to violate the Foreign Corrupt Practices Act (FCPA) in connection with a scheme to bribe foreign officials in Brazil, Angola and Equatorial Guinea.
***
All oil contracts should be subject to renegotiation-UNDP
Oil contracts are not set in stone. If there are fiscal arrangements that leave a country holding the short end of the proverbial stick, then renegotiation is not an unreasonable expectation. This is essentially the viewpoint of a report that was facilitated by the United Nations Development Programme (UNDP).
That report was written by Anthony Paul, Principal Consultant of the Association of Caribbean Energy Specialists Ltd.
For future contracts, it was recommended that Guyana puts in place a strategy for renegotiating contracts. Paul said that this must include engaging an experienced negotiator. As with other such advisory services, Paul said that if such a person is taken on, use should be made of her/his presence to train and mentor Guyanese staff from the Ministry and other agencies, involved in contract negotiations.
***
ExxonMobil not worried about Venezuela Border issue
ExxonMobil’s Kimberly Brasington recently assured that her company is not the least bit worried about Venezuela and the border issue it is involved in with Guyana. In an interview with Kaieteur News, Brasington said that ExxonMobil has worked for a number of years around the world and border controversy is not a new issue.
The former head of Exxon’s Public Relations Department here said, “We take our lead from the Guyana government and we are very confident with our operations going forward.”
Guyana has already applied to the International Court of Justice (ICJ) to hear its case in the controversial border matter. But before this can occur, it must submit a written pleading to prove that it is within the court’s jurisdiction to hear the case. Venezuela is expected to do the same.
***
ExxonMobil’s Country Manager lies to Parliamentary Committee
All of the companies on the “list” are owned by Guyanese. This is what ExxonMobil’s Country Manager, Rod Henson recently declared when he appeared before the Parliamentary Sectoral Committee on Natural Resources.
But, is this true?
A few months ago, ExxonMobil released a list of 228 companies that it conducted business with. The list was released as proof of the companies’ local content efforts. The list quickly became controversial as names of companies appeared twice. Names of individuals also appeared on the list. In fact, even Bourda Market made the list.
APNU Parlimentarian Audwin Rutherford had asked, “How many of these companies are actually owned by Guyanese. Because we know that some of these are foreign companies registered here.”
Henson had responded: “Those are not foreign companies that are registered here. Those are all Guyanese owned companies, again, some small, many large but…what we are submitting is a list of all the Guyanese companies we worked with. That’s what we did.”
However, checks at the Deeds Registry have proven that the information Henson provided was not accurate. While some of the companies on the list are indeed owned by Guyanese, a few are foreign owned, which have branches registered here.
This means companies that existed before their operation in Guyana. And, some of the companies are those indigenous to Guyana but were set up by foreigners.
***
Given mistakes made with ExxonMobil Contract…Guyana should not enter into one-on-one negotiations with other oil companies
Former Presidential Advisor on Petroleum, Dr. Jan Mangal, is of the firm belief that Guyana’s authorities should not award a single oil block via one-on-one negotiations with any other oil company.
In a statement to the media, Dr. Mangal emphasized that “one-on-one negotiations” are prone to corruption and Guyana is a highly corrupt place.
The Oil and Gas Consultant said, “Chevron, Petrobras, etc. would love for Guyana to enter into one-on-one negotiations because they know they can outwit Guyana at the negotiating table, or even worse, the same way Exxon outwitted Guyana in 2016.”
Dr. Mangal said, too, that Guyana should not award any acreage until there is sufficient capacity in the new Department of Energy for creating and managing a transparent, competitive auction process.
***
ExxonMobil submits padded list to Govt. on local content
USA oil and gas giant, ExxonMobil, has provided the Government of Guyana with a list of companies it used as part of its local content obligations in the first quarter of 2018.
But the list of “registered companies” is padded with the names of 41 individuals. These include Dennis Charran, Mokesh Daby, Colin Daniels, Colvin Lockhart, Kembleton Clyne, Kurt Branker, Ramesh Seebarran, Ganesh Ajodha, Gary De Jesus, and Stan Gouveia.
It also duplicates the name of Ram and McRae, an accounting firm. It is listed as Ram & Mcrae and three spaces later as Rams and McRae.
Speaking with Kaieteur News, two international local content experts said, “The number of companies used by ExxonMobil is immaterial. The crux of the matter is ‘the value of the investment’ made by ExxonMobil.
In this regard, they said that Guyana’s Parliamentarians should call on the company to give a detailed breakdown of how many companies benefitted from US$1M, US$500,000, $100,000 and under US$50,000.
“With that breakdown, you will be able to see if the country is getting chicken feed or real investment…
With meaningful investment, the sectors that support the operations of the company would be able to see real expansion and development,” one of the Local Content expert explained.
***
IMF report reveals…Govt. agrees to pay ExxonMobil’s tax out of nation’s share of profit oil
While government continues to give the nation the impression as if it will be benefitting from an equal share of profit oil, the truth is, Guyana will be getting much less.
The nation will be made to pay ExxonMobil’s Corporate Income Tax (CIT) to the Guyana Revenue Authority (GRA). This money will come from Guyana’s share of profit oil.
In a technical assistance report that the International Monetary Fund (IMF) handed to the Government of Guyana the regulatory body noted that according to the Guyana Geology and Mines Commission’s published minimum terms, the contractor’s CIT liability is paid out of the government share (also known as pay-on-behalf system). In other words, the government share of profit oil/gas is inclusive of CIT and, therefore, the contractor (ExxonMobil) does not have to make separate CIT payments.
IMF said that since the CIT is included in the government share of profit oil, “this implies a ring-fence around the contract area for CIT purposes.”
The IMF said that while this arrangement is not unique to Guyana, 50 percent is a low share to be given to a government that still has to pay taxes on behalf of the company.
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Govt. ignores IMF’s advice to close fiscal loopholes in existing oil contracts
The International Monetary Fund (IMF) reported since 2017 that the Guyana-ExxonMobil PSA has the lowest Average Effective Tax Rate (AETR) of all the fiscal regimes evaluated.
The Fund said this result confirms that the terms offered in the agreement are generous to the investor, “but were probably required to attract investment at a time in which little was known about the geological prospects of the country. Moreover, some of the countries with the highest AETRs in the sample, such as Norway and Trinidad and Tobago, are mature and well-established producers that have had the opportunity to fine tune their fiscal regimes over time.”
The IMF recommended that Guyana move in the direction of those countries that have fine tuned their fiscal regimes.
***
Guyana has to pay ExxonMobil to carry out feasibility study on gas
Guyana has to pay for the feasibility study to be carried out by ExxonMobil to ascertain whether or not there is excess associated gas for the country to use for energy.
So far, only associated gas has been found in Guyana. The other type of gas is non-associated.
Associated gas is gas that has been found in oil wells, while non-associated comes from reservoirs that are not connected with any known source of liquid petroleum. It is also called “dry gas.”
Guyana’s contract with ExxonMobil gives the American giant first jump. It states that the associated gas produced from any oil field within the contract area shall be with priority, used for the purposes related to the operations of production and production enhancement of oil fields, such as gas injection, gas lifting and power generation.
***
ExxonMobil’s partner, Hess never filed a financial statement in Guyana – Ram
ExxonMobil is represented by three companies as the contractor for the Stabroek Block: Esso, China National Offshore Oil Corporation, and Hess.
Chartered accountant and Attorney-at-law, Christopher Ram, said that at a minimum, before accepting the pre-contract costs of US$460,237,918, Minister of Natural Resources, Raphael Trotman should have verified it with the December 2015 audited financial statements of the three companies. He said that these documents should have been filed with the public authorities.
Ram said that he had already gone down the road in checking for these statements. However, his attempts were impeded when he could not have found a single financial statement for Hess. Ram said that he is now assured that the government made no attempts at cross checking the pre-contract costs submitted by the contractor.
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Guyana’s contract with Tullow even worse than the lopsided ExxonMobil agreement – Ramson
Yes, the ExxonMobil contract is bad. Guyana is not getting its fair share. But guess what? The contract Guyana has with Tullow Oil is even worse. This was the contention of Attorney-at-law, Charles Ramson at a press conference that he hosted at Cara Lodge earlier this year.
Ramson, the holder of a Master’s degree in Oil and Gas Management, said that the provisions of the Production Sharing Agreement (PSA) that Guyana has with Tullow Oil will cause the nation to secure an even smaller share of revenue when compared to the ExxonMobil agreement. Ramson noted that the Royalty for the Tullow Contract is one percent as compared to the two percent from ExxonMobil. He noted, too, that the licensing fee is also lower.
***
Guyana signs on to absurd arrangement with Tullow/Eco-Atlantic, CGX and Ratio – 1 % royalty subjected to cost recovery
An examination of Production Sharing Agreements (PSA) that two Governments of Guyana signed with Eco-Atlantic and Tullow, CGX Energy Inc. and Ratio Energy Limited revealed that they have several similar clauses. One of them states, “The Government’s share of Profit Oil specified in Article 11 includes royalty payable by the Contractor at the rate of one percent (1%) of Crude Oil produced and sold, and delivery to the Minister, pursuant to Article 14 of his share of Profit Oil equivalent to royalty shall constitute payment of such royalty in kind.
“Within one hundred and eighty (180) days following the end of each year of assessment receipts evidencing payment of Contractor’s royalty shall be furnished by the Minister to the Contractor stating the amount and other particulars customary for such receipts.”
Kaieteur News revisited the 1999 agreement that the government had signed with ExxonMobil, which has the same oppressive clause. However, the clause was omitted from the 2016 contract with ExxonMobil.
It is now clear that in negotiating the one percent royalty increase in 2016, the clause was removed. This reality gives credence to what Kaieteur News learnt which is that all of the oil contracts, which have been signed by APNU+AFC government as well as the PPP/C government are similar.
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IMF alerts govt. to unfavourable profit sharing regime in ExxonMobil contract – Country almost alone in this category
The International Monetary Fund (IMF) has alerted the Government of Guyana to the fact that it has entered into a unique and disadvantageous agreement with oil giant ExxonMobil. Specifically, the IMF has noted that the profit sharing regime agreed to, is one that is very uncommon in the world, and will rob Guyana the chance of being able to have a greater share of profit, relative to the success of the oil project.
This was highlighted in a Technical Assistance Report that the IMF handed to the APNU+AFC government. The government has refused to make the report public.
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Guyana lost over US$40M in Govt.’s cheap sell out of Orinduik block
Charles Ramson is of the opinion that the decision taken by the Government of Guyana not to auction its remaining oil blocks, after the 2015 oil find that de-risked the basin, is a decision that has cost the nation greatly.
Ramson, the holder of a master’s degree in Oil and Gas Management, said that the 2016 contract signed between the Government of Guyana and oil companies, Eco-Atlantic and Tullow Oil is a reflection of the blunder made by the government.
Ramson said that in addition to the many poor provisions of the contract, Government lost out on a Signature Bonus which, based on available figures, if negotiated properly could have been no less than US$40M.
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