Latest update February 2nd, 2023 12:59 AM
Jun 24, 2022 News
– areas include interest on loans, decommissioning fees, tax waivers—Intl Expert
Kaieteur News – Vice President Bharrat Jagdeo and officials of Esso Exploration and Production Guyana Limited (EEPGL)—ExxonMobil Guyana—have argued that Guyana in fact collects more profit than the oil companies with interests in the Stabroek Block but it is the additional terms in the agreement where ExxonMobil really benefits.
This, according to Tom Mitro, a former director of the University of Houston’s Global Energy, Development and Sustainability program, and former Chevron executive with decades of experience negotiating international contracts. He argues that the country is losing primarily through the deductions being made by the operator and not necessarily in the profit sharing aspect of the deal.
His views were recently shared in a Forbes Magazine Energy report captioned “As Guyana’s Oil Business Booms, Could A Potential New Deal With Exxon Loom?”
In that publication, Mitro highlighted that it was the many other negotiable clauses in the contract, they were established in favor of Exxon – an approach that most of Guyana’s peers have not agreed to.
He cited as example, that one such provision allows Exxon to recover all interest on loans borrowed to fund the development of related oil projects. In practice, Mitro said, this means that the operator and its partners are able to charge Guyana for the cost of borrowing from their affiliates with no limits. “Contracts typically have cost recovery mechanisms, but usually with limits,” Mitro said, explaining that without written limits, companies can abuse the amount of borrowing they do within the conglomerate.
Another provision of the 2016 Production Sharing Agreement (PSA) highlighted by Mitro, allows ExxonMobil Guyana to not have to pay any income tax on their profit share, and that the government will provide a receipt that can be used for tax deduction purposes elsewhere.
Additionally, it was noted that there is a clause that allows Exxon the right to get cost recovery oil right from the beginning, to cover the future decommissioning and abandonment of the project at its end. These costs will not be actually incurred for several years.
This publication last week had reported that already, for 2020 and 2021, ExxonMobil and its partners, Hess Corporation and CNOOC Group, have recovered a whopping US$355.7M for decommissioning costs which would be incurred in another 18 years for the Liza Phase One Project.
According to Mitro, “In this case, the government is giving Exxon something of value – oil – to cover Exxon’s future costs.”
According to the international expert “it is unusual to pay upfront for a future expense because of the recognized time value of money.”
He, in the article, posted that Exxon’s experience and deeper knowledge of contracts likely strengthened their negotiating position, while on Guyana’s side, domestic politics also played a role in the deal cut since the negotiations came just before a contentious election, and the promised revenue was advertised as offering a better future for Guyana.
Additionally, it was noted that “it also came right before Exxon publicly announced that results from a second exploratory well indicated that Exxon would recover more than twice the amount of oil it had originally expected.”
In retrospect, he suggested the biggest challenge for Guyana is the extremely short time frame for its transition itself from a non-oil producer to one with reserves rivalling Mexico or Angola. And to be fair, it has been Exxon’s vision which has led this change, with its 2015 discovery of Guyana’s oil and its subsequent investment in bringing that oil to market.
The current contract was negotiated in 2016 and takes most of the terms of a 1999 agreement, signed by then President, the Late Janet Jagan.
It splits the oil output at 50-50 between the government and Exxon, and gives Guyana a two percent royalty (the 1999 agreement had a One percent royalty), after first deducting up to 75 percent of gross production as cost oil for recoverable expenses such as exploration and production costs, among others.
This publication yesterday reported too, that one such cost being recovered was the two percent royalty being paid by ExxonMobil to Guyana since it was, under Guyana’s Laws, considered a tax deductible expense.
Pres. Ali begging for loans!!
Feb 02, 2023
Three Under 19 Rising Stars players called up to feature in marquee event in South Africa JOHN’S, Antigua – The Cricket West Indies (CWI) selection panel yesterday announced a 15-member West...Kaieteur News – We can begin by arguing that if the Guyana Government is undemocratic then the person(s) or group(s)... more
Kaieteur News – It is ironic that local cricket enthusiasts should be calling upon the government to intervene in the... more
By Sir Ronald Sanders (The writer is Antigua and Barbuda’s Ambassador to the United States of America and the Organization... 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]