US multi-national, ExxonMobil, announced yesterday that it made its 18th discovery offshore Guyana at the Redtail-1 well in the Stabroek Block.
The exploration and production giant said this will add to the previously announced estimated recoverable resource of more than eight billion oil-equivalent barrels.
The company noted that Redtail-1 encountered approximately 232 feet (70 meters) of high-quality oil bearing sandstone and was drilled in 6,164 feet (1,878 meters) of water.
The well is located approximately 1.5 miles (2.5 kilometers) northwest of the Yellowtail discovery.
In addition to the Redtail-1 discovery, Exxon said that drilling at Yellowtail-2 encountered 69 feet (21 meters) of net pay in newly identified, high quality oil bearing reservoirs among the original Yellowtail-1 discovery intervals.
It said that this resource is currently being evaluated for development in conjunction with nearby discoveries, all of which are tied to a Production Sharing Agreement (PSA) that sees it walking away with the lion’s share of the oil profits.
In July 2019, Kaieteur News had done an extensive review of 130 PSAs to better understand the extent to which the Guyana-ExxonMobil deal is fraught with unfair provisions. For example, according to the PSA, the government is paying the contractor’s income tax out of the country’s share of the profits. However, none of the 130 PSAs examined by this news agency shows such an arrangement.
Further, Guyana’s PSA is the only one out of 130 PSAs 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 was 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 care 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, it 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.
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