By Kiana Wilburg
The APNU+AFC government’s failure to hold elections by or on September 18, last, has attracted harsh criticism from several quarters, all of which conclude that it is in breach of the Constitution and can only be seen as illegitimate.
In fact, a joint statement from the United States of America (USA), Great Britain and the European Union (EU) last week, categorically acknowledged that the government has violated the Constitution, as a result, hindering its ability to support Guyana’s development needs.
While President, David Granger has told the media that he does not agree with these sentiments, there are others who strongly believe that the somber words of the USA and Great Britain cannot be ignored. Specifically making this observation was Attorney-at-Law and Petroleum Consultant, Charles Ramson.
During an exclusive interview with this publication, Ramson posited that the illegitimate nature of the government and the constitutional crisis that has ensued plunged the oil industry into a state of uncertainty. He noted that oil companies such as ExxonMobil and Tullow Oil are quite aware that they would be taking on considerable risk engaging the APNU+AFC on projects or worse yet entering contracts for development projects.
Further to this, Ramson said, “This government has no legal status. It therefore compromises its standing to accept revenues for the State and this extends to the oil sector. Now, the coalition had announced earlier this year that Guyana will be selling its share of the crude from the Stabroek block which is operated by ExxonMobil’s subsidiary, Esso Exploration and Production Guyana Limited.”
The lawyer added, “But an illegitimate government cannot sell the nation’s oil nor does it have the power or standing to enter any new agreements with a third party to do so. So the political and constitutional crisis we are in constrains Guyana’s ability to make key decisions regarding its oil sector. So the situation essentially damages the development of the oil industry.”
The opposition member said too, that the state of affairs not only affects decisions on the sale of Guyana’s share of its oil but also the establishment of a Petroleum Commission to regulate a sector and the introduction of a much needed Local Content Policy.
CONSIDER OTHER OPTIONS
Given its inexperience in this rather complex field of selling oil to the world market along with its lack of monitoring systems and other essential mechanisms, University of Houston Instructor, Tom Mitro has cautioned that Guyana ought to consider other options.
During an exclusive interview, the official stressed that selling crude requires a good deal of marketing expertise and Guyana would need to get people trained in order to do this effectively. Mitro had cautioned that this could take several years.
Mitro had acknowledged that the advantage of Guyana selling its own oil is that the Government’s appointed managers of the oil would see and understand the market firsthand and not have to rely on Exxon to sell the crude at a price that may not be ideal. As one example, the Oil and Gas Consultant noted that Angola’s stated own oil company, Sonangol, had set up its own crude oil marketing company years ago with offices in Houston, London and Singapore.
Mitro had stressed that it took quite a few years before they were able to stop relying on expatriates to these operations and becoming more independent, fully staffed, managed by Angolans. “So what I am trying to tell you in simple terms is that this is a long term process,” Mitro noted.
Further to this, the Oil and Gas Consultant stressed that an alternative for Guyana is for the Department of Energy to rely on the operator being Exxon, to sell the crude. He reminded that this option is already envisioned in the Stabroek Block Production Sharing Agreement (PSA). He said that this can be done right from the beginning while noting that Exxon certainly has the expertise to do it.
The official had said, “Also, this could mean the government gets to sell its share of oil on a more regular basis since its entitlement would probably be combined with Exxon’s when planning tanker loading logistics. Otherwise, they would have had to wait until their entitlement accumulates enough to comprise a full tanker size lifting.”
Mitro noted however that the problem with this approach is that the Ministry would want to be able to verify that the prices obtained are in line with the market. He said that if Exxon sells to its own downstream affiliates, that gets much more difficult to do. He stated too that Exxon will charge a fee for this, noting that this fee will most likely range from anywhere from US$.02-US$.07 per barrel.
In addition to the foregoing, Mitro asserted that Guyana’s other alternative is that the Energy Department can hire a third party crude oil marketing firm to do this for them. Mitro said, “This could mean they obtain a slightly higher price from time to time, but with the risk that the marketing firm may not be able to easily dispose of the oil at times when the market is declining as they don’t have access to refineries.” He said that this is the same risk if the Energy Department would opt to sell on its own without a marketing firm. He also stressed that the charge from a third-party firm may be even higher than what Exxon would charge.
Overall, the Oil and Gas Consultant said it makes sense for the Energy Department to develop a strategy that evolves overtime. One such strategy he suggested might involve requesting Exxon sell the government’s share over the first few years, and at the same time, request to have one of its own be seconded to the Exxon trading offices in order to learn the business.
At the same time, Mitro said they can perform independent reviews or audits of the prices using publicly available pricing data from S&P Global Platts.
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