One of the most worrying loopholes in Guyana’s Production Sharing Agreement (PSA) with ExxonMobil’s subsidiary, Esso Exploration and Production Guyana Limited (EEPGL) and its two partners, Hess Corporation and CNOOC/NEXEN, is the absence of robust ring-fencing provisions.
This provision is important as it prevents the oil company from offsetting the costs incurred on an unsuccessful well, against one that is successful.
For example, ExxonMobil had spud two wells in the Stabroek Block called Skipjack and Sorubim. Both wells came up dry.
Exxon and its partners, however, have more than a dozen other discoveries in that same block. Because there are no ring-fencing provisions, Exxon has nothing to worry about as it can easily offset the costs incurred for the two unsuccessful wells on the profits made on any one of its successful finds. When this occurs, Guyana’s cut of the oil riches gets smaller.
This disturbing flaw of the Guyana-ExxonMobil deal was raised with the International Monetary Fund (IMF) during its recently concluded Article IV Mission with the coalition government and other stakeholders.
The Article IV Consultation is conducted by the IMF with the intention of assessing the member country’s economic health while laying out probable financial difficulties.
The IMF in its statement that was issued yesterday, said that its team was led by Mr. Arnold McIntyre. The IMF visiting team was in Guyana from June 3 to 14, last.
The IMF members met with Prime Minister, Moses Nagamootoo; Finance Minister, Winston Jordan; Minister of Legal Affairs and Attorney General, Basil Williams; Central Bank Governor, Dr. Gobind Ganga; representatives from the private sector, banks, the opposition party, labour unions, and other stakeholders.
The IMF said, “The authorities have indicated their concerns that the absence of a ring-fencing arrangement in the Stabroek Production Sharing Agreement could potentially affect the projected flow of government oil revenues.
The rapid appraisal and development of multiple oil fields could affect the timing and amount of profit oil to be shared with the government from a producing oil field by allocating costs from various fields under development to the producing field.”
The Fund noted that the authorities are developing strategies to mitigate such a possibility. It said that this includes a national oil depletion policy to guide extraction and production and clearer ring-fencing rules for new investments.
UNDP MAKES APPEAL
A report that was commissioned by the United Nations Development Programme (UNDP) and prepared by Oil and Gas Consultant, Anthony Paul, had called on the government of Guyana since 2016 to have future oil deals subjected to strict ring-fencing provisions.
The Local Content expert also notes that the government must require where there is no prior commitment, a new model licence, asserting that the holder of that instrument will be subject to new oil laws and regulations.
He said that government must require signature bonuses, retain equity in all new licences, and seek early or aggressive relinquishment clauses.
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