Dec 05, 2020 News
Kaieteur News – The Oil & Gas Governance Network (OGGN) stands firm that ExxonMobil’s Stabroek Block agreement is renegotiable, and that former Head of the Environmental Protection Agency (EPA), Dr. Vincent Adams proved this during his stewardship in the post.
In October last year, Dr. Adams had told Kaieteur News how he had ensured that the environmental permit handed to Esso Exploration and Production Guyana Limited (EEPGL) includes a provision committing the parent company, ExxonMobil, to accepting unlimited liability for all costs related to oil spills or any other such incident. This was done for the Liza Phase Two environmental permit.
This is a departure from what is provided for in the Production Sharing Agreement (PSA) for the Stabroek Block, which governs Liza Phase Two and other projects.
“The Production Sharing Agreements (PSA) we signed is with the limited liability companies, not the parents.” Dr. Adams had said. “Those subsidiaries don’t have a lot of assets. So what we did was to ensure that in the permits, we got the parent companies to agree that they will pick up any costs that are not covered by the subsidiaries.”
The details would be worked out for all the members of the Stabroek Block consortium – ExxonMobil (Operator – 45 percent), Hess (30 percent), and CNOOC (25 percent) to have their share in the liabilities, if there is any oil spill.
“Those improvements have centered around protecting Guyana from the devastation of oil blanketing our shores and those of our neighbours.” OGGN co-founder Darshanand Khusial said. “The Stabroek Block is Guyana’s golden goose with its 9 billion barrels of oil. Has the government inquired with Exxon about improving the financial terms of the Stabroek Block oil contract?”
“Dr Adams and his team acted in the best interest of Guyana by working with and convincing Exxon to amend the terms associated with the Stabroek Block to protect Guyana. Dr Adams noted in the interview that Exxon will consider reasonable requests if asked.”
In this regard, many political commentators have found it unreasonable that Guyana is set to take home a 14.5 percent of revenues from the sale of its crude for years to come. Royalty is set at two percent of oil produced and sold. Guyana also agreed to settle for 50 percent of the profit after ExxonMobil has recouped its investments, at a cost recovery ceiling of 75 percent of oil sales. The oil companies pay no taxes.
At an oil price of US$50 a barrel, Khusial said that Liza Phase One, with 450 million barrels, would produce US$22.5 billion. He added that if Guyana got a revenue share similar to Suriname, it would be taking home US$8.1 billion from Liza Phase One.
Suriname is set to take home 36 percent of the revenue from the sale of oil from its lucrative Block 58. Some of the features of that are a 36 percent income tax rate and 6.25 percent royalty.
OGGN pointed to a 2017 report of former Exxon country manager, Rod Henson, saying that Guyana would get US$7 billion from the Liza Phase One project, assuming an average oil price of US$50 per barrel. Khusial said Guyana would be lucky if it gets half that.
He explained that, due to a lack of ring-fencing provisions, Exxon could transfer its expenses from other wells to be recovered from the sale of Liza Phase One crude, which could result in Exxon staying at the top of its cost recovery ceiling for this project until the very end.
“The reason why is that Liza 1, Liza 2 and Payara have infrastructure expenses totalling US$18.5 billion.” Khusial said.
These are the other projects which Exxon has received approval for, but hasn’t started yet.
“Seventy five percent of US$22.5 billion is approximately US$16.9 billion, which is less than the US$18.5 billion expenses. Thus, Liza 1 won’t be able to payoff the debt that has accumulated, as part of capital costs, for the Stabroek block. Thus, the maximum we could get from Liza 1 is about 14.5%. In dollar terms that is US$3.3 billion.”
OGGN questions whether this is reasonable or fair, given that Henson had claimed that Guyana would get more than double that sum, given that Exxon continues to flare billions of feet of natural gas without compensating Guyana, and given that the Stabroek consortium is exempted from taxes ordinary Guyanese have to pay.
“Two of the major oil companies operating in the Stabroek Block, Exxon and Hess, are based in America.” Khusial said. “A country that pulled out of the Paris Agreement this year after signing it in 2016. In 2018, the Americans renegotiated the North American Free Trade Agreement (NAFTA), established in 1994, after the United States determined the deal was unfair to its citizens. Was sanctity of contract ever brought up in these cases or is it only whipped out on us by American oil companies?”
“Didn’t the oil companies already set a precedent that the terms of the original Stabroek agreement can be changed by agreeing to unlimited insurance liability? Did the present or previous governments ever engage Exxon and its partners to act in the best interests of Guyanese people to request a fair financial deal for the Stabroek Block?”
Vice President, Dr. Bharrat Jagdeo had even said it himself in August that there were provisions in the contract that he was uncomfortable with and that he would work to improve them. During an August 14 press conference, Dr. Jagdeo had said that the Government wants ExxonMobil to prosper, but that Guyanese must share in that prosperity. Hence, he said, he would expect them to take those issues seriously. These provisions related to local content and the cost of gas. The contract requires ExxonMobil to pay a paltry yearly amount of US$300,000 for training of Guyanese. Jagdeo had said that that amount is inadequate, and will have to improve. As for the gas-to-power project, he had said that Government will have to get the gas at a cost that is very different from what it is in the contract, and that the price will depend on technical assessments. The size of Guyana’s revenue share from the sale of its crude did not feature in his considerations. He has said on several occasions that he will not renegotiate those terms.
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