What happens if Exxon refuses to pay the 2% royalty and the 12.5% profit oil which is due to Guyana? What will the Department of Energy do in such a situation?
How can it force Exxon to meet its obligations, if even before production begins, it cannot stop that company from having the first bite at the first million barrels of oil?
Guyana should take a look at what happened in Chad before it assumes that it is going to be easy for it to collect what is owed by Exxon. In fact, Chad presents an interesting case study of what happens to countries which have had relations with Exxon.
It seems as if every Third World country in which Exxon Mobil does business, ends up in difficulties. Chad is one of those countries. It is today reeling not just from civil conflict but a deepening political crisis which began when oil prices dipped in 2014.
Chad has always been one of the world’s poorest countries. That has not changed in the 16 years since oil production began. The problems for Chad are compounded by the fact that it is landlocked and has to ship its oil production over land and through one of its neighbouring states.
The country which has more than fifteen million mouths to feed has been burdened by more than half a million refugees from Sudan. It began producing oil in 2003.
Today Chad is highly dependent on oil production, which is transported through the landlocked country to a floating platform vessel via a pipeline which passes through Cameroon.
Exxon operates that pipeline which has multiple investors including other oil companies and international financial agencies. The pipeline has been subject to criticism over its effects on the environment but those have been largely ignored by the company and the government.
Unlike Chad, Guyana’s oil is offshore. But Guyana has much to learn from Chad’s experience in dealing with Exxon. In 2016, the government of Chad was forced to take Exxon to court over what it said was unpaid taxes and royalties. Chad was claiming more than $800M in taxes and royalties. Exxon denied the allegations
In 2017, a Chadian court issued a massive judgment of $74B against Exxon. That amount was never going to be paid but it was large enough to strong arm the company to settle with the government. The terms of that settlement have not yet been made public. Exxon weaved its magic. It did not pay the penalties but has managed to preserve its exploration licence up to 2050.
Chad’s oil production instead of increasing has been decreasing. Production stands now at around 130,000 barrels of oil – just around the level at which production is expected to commence next month in Guyana – but this is a decline from the 173,000 barrels which the country produced in the early years of oil production.
The effects of low oil prices and constrained production have affected the economy. Growth contracted in 2016 and 2017 and is only now slightly recovering. Like Angola, Chad is in discussion with the IMF which is insisting on restructuring of the country’s debt. This year there has been some improvement but the outturn is far from sufficient to ease Chad’s economic woes.
Guyana has to be mindful of other countries’ experiences in dealing with ExxonMobil. Exxon and its partners will be the only companies pumping oil offshore in the Guyana next year. And therefore, it has to ensure that it gets what it is entitled to under its agreement with Exxon Mobil.
So what then is Guyana’s fallback position should there be a dispute over what Exxon has to pay? What if Exxon decides to strong arm the government into more concessions by withholding royalties and Guyana’s share of profit oil?
The agreement signed between Exxon and the Government of Guyana allows for the government to elect whether it wants its 2% royalty in cash or in kind. The government has not indicated whether it will take cash or kind but it is most likely to be kind.
And it should be noted that Exxon and its partners have the right to deduct from this royalty all the petroleum it uses for fuel and transportation in the course of production.
But there is also a clause (15.7) which allows for the Minister responsible for petroleum to defer the payment of royalty. This is a high-risk provision when dealing with a company which is as crafty as Exxon.
Chad had to file a lawsuit in order to press for what it was owed. And when the court ruled, Exxon settled out of court, on terms which are not yet public and probably never will be.
Guyana had better take note. Exxon can play us like a fiddle! As they have already done!
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