Latest update March 29th, 2023 12:59 AM
Jul 21, 2019 News
By Kiana Wilburg
The Production Sharing Agreement (PSA) Guyana signed with ExxonMobil has been scrutinised from all angles by industry stakeholders far and wide.
No matter which way they look at it, they simply cannot agree with Exxon’s Country Manager, Rod Henson, who opines that Guyana got a good deal.
They all conclude that the Guyana-Exxon PSA possesses some of the most unusual provisions they have ever come across. The absence of some fundamental safeguards is alarming to those critics too.
Kaieteur News did an extensive review of 130 PSAs to better understand just how “unusual” Guyana’s provisions are.
It turns out that out of over 100 PSAs this newspaper examined; Guyana’s is in a class of its own. It is the only one, which has more than a dozen odd provisions all in one place.
For example, the PSA says sees the government paying the contractor’s income tax out of the country’s share of the profits. However, none of the 130 PSAs examined shows this arrangement.
Further, Guyana’s PSA is the only one out of 130, which has very moderate work obligations for contractors who are vested with offshore licenses.
Additionally, the Guyana-ExxonMobil PSA is the only one out of 130 contracts, which has no ring-fencing provisions to prevent costs of unsuccessful wells being carried over to that of successful wells.
There is also no sliding scale for royalty to increase as production improves.
And that is not all. Guyana’s PSA is the only one out of 130 that allows insurance premiums to be fully recovered as well as interest on loans and financing costs that are incurred by the contractors.
The 130 PSAs examined are part of a register on www.resourcecontracts.org. (https://resourcecontracts.org/search?q=Production+Sharing+Agreement+)
That website offers over 620 PSAs from around the world for perusal. Below are other anomalies that were found when Guyana’s PSA were compared to others.
In the PSA between Mauritania and Kosmos Energy, it specifically states that the Contract is governed by the laws and regulations of the Islamic Republic of Mauritania, supplemented by the general principles of the laws of international commerce.
It notes that the Contractor shall be subject, at all times, to the laws and regulations in force in the Islamic Republic of Mauritania.
The foregoing is in stark contrast to what is obtained in Guyana’s PSA with ExxonMobil. In that arrangement, Guyana has accepted that changes to its laws in the future cannot affect the ExxonMobil PSA.
If it does, the government would have to compensate the Stabroek Block operators for any loss incurred.
Decommissioning refers to the safe removal of all the pipelines and other oil production equipment once the oil project comes to an end or is nearing its end.
In Liberia, if the government decides not to accept all or part of the assets involved in the oil projects, it may, no later than 90 days following the date specified in the agreement, require the Contractor, in accordance with good international petroleum industry practice, to perform abandonment operations and to remove at the cost of the Contractor, the facilities relating to the surrendered area. The contractor can recover some of these costs but not years before it is time for decommissioning.
In Guyana’s case however, the costs will not be borne by the operator. According to Section 20.1(d)(gg) and Accounting Procedure Section 3.1 of the Guyana-ExxonMobil deal, the American oil king can tabulate a budget for abandonment , and recover a portion of that budget in the form of oil, years before it is time for decommissioning.
It is able as well to recover the full costs of abandonment too.
In Uganda’s PSA with Tullow, it explicitly states that for purposes of cost recovery, ring-fencing around each Contract Area shall apply.
In the event that a Licensee has more than one Contract Area, the calculations shall be done on a contract by contract basis. There shall be no consolidation.
Guyana’s PSA with Exxon and all other offshore operators speaks nothing of this. Tullow is also an operator in Guyana’s waters.
According to a PSA between Iraq and Western Zagros Resources Ltd, the Government reserves the right to an independent audit at the contractor’s expense, of its accounts and records, which must be kept within that territory.
The Government can also do its own annual audit. The agreement specifically states that the contractor must fully and expeditiously cooperate with the government in this regard.
The contractor is also expected to use its best endeavours to ensure its affiliates comply with auditing requirements while taking caring of all costs.
This however is not obtained in Guyana. The Government accepted terms, which see the country standing the costs of all audits.
It can do audits via the revenue authority or an independent firm of its choice. Importantly, it cannot go after records held outside of Guyana, which would support its audit as well.
According to the PSA between Mongolia and DWM Petroleum AG, the contractor is required to pay signature and production bonuses based on certain circumstances. They are:
1) The sum of US$ 500,000 as a Production Bonus if average daily quantity of Contract Crude Oil for any Calendar Month is equal or less than 5,000 barrels
2) The sum of US$600,000 as a Production Bonus if average daily quantity of Contract Crude Oil for any Calendar Month equals to or exceeds 5001 barrels but is less than 10,000 barrels.
3) The sum of US$ 700,000 as a Production Bonus if average daily quantity of Contract Crude Oil for any Calendar Month equals to or exceeds 10,001 barrels but is less than 15,000 barrels.
4) The sum of US$ 800,000 as a Production Bonus if average daily quantity of Contract Crude Oil for any Calendar Month equals to or exceeds 15,001 barrels but is less than 20,000 barrels.
5) The sum of US$1M as a Production Bonus after average daily quantity of Contract Crude Oil for any Calendar Month exceeds 20,001 Barrels.
Guyana’s contract with Exxon speaks nothing of a production bonus, much less one that is subjected to a sliding scale.
MEASUREMENT OF PETROLEUM
In a PSA Kenya has with Camac Energy Ltd speaks to the measurement of Petroleum, it clearly notes that the volume and quality of Petroleum produced and saved from the Contract Area shall be measured by methods and appliances customarily used in good international petroleum industry practice and approved by the Minister.
It goes on to state that the Minister may inspect the appliances used for measuring the volume and determining the quality of Petroleum and may appoint an inspector to supervise the measurement of volume and determination of quality.
Further to this, it was noted that where the method of measurement or appliances used therefore, have caused an overstatement or understatement of a share of the production, the error shall be presumed to have existed since the date of the last calibration of the measurement devices, unless the contrary is shown, and an appropriate adjustment shall be made for the period of error.
The Minister and the Contractor are also allowed in the PSA to determine the measurement point at which production shall be measured and the respective shares of Petroleum allocated.
Kaieteur News was unable once again to make any comparison since in the Guyana-Exxon PSA; such a provision does not exist.
Selling other countries products is progress and development for Pres.Ali & others.
Mar 29, 2023Kaieteur News – Ceili Peterson will be the lone Guyanese Taekwondo athlete at the Pan American Games in Santiago, Chile, after earning one of the 12 spots up for grabs in her 49kg weight class...
Mar 29, 2023
Mar 29, 2023
Mar 29, 2023
Mar 29, 2023
Mar 29, 2023
Kaieteur News – Years ago, a young teenage schoolchild went to extra lessons after school. Led by a ringleader, a group... more
By Sir Ronald Sanders Kaieteur News – (The writer is Antigua and Barbuda’s Ambassador to the United States and the... more
Freedom of speech is our core value at Kaieteur News. If the letter/e-mail you sent was not published, and you believe that its contents were not libellous, let us know, please contact us by phone or email.
Feel free to send us your comments and/or criticisms.
Contact: 624-6456; 225-8452; 225-8458; 225-8463; 225-8465; 225-8473 or 225-8491.
Or by Email: [email protected] / [email protected]