Jul 02, 2022 News
…calls argument a distraction from contract renegotiation
Kaieteur News – The amount of money Guyana is losing from the lopsided 2016 Production Sharing Agreement (PSA) should be of more concern to Guyanese stakeholders rather than the financial risks undertaken by oil companies operating in the Stabroek oil Block.
Oil and Gas Governance Network (OGGN) member Mike Persaud, made the assertion recently as conversations evolve over the amount of risk oil companies’ are taking to work here.
Persaud is adamant that oil companies are gaining heavily from Guyana’s PSA, while the country continues to lose from the said agreement.
The question therefore, is why Guyanese leaders are preoccupied with the “financial risk assessment” of oil companies’ investment in Guyana, when such an egregiously lopsided contract has been signed. Persaud said that “Guyanese are misguided to be concerned with “financial risk assessment.” In one instance, Guyana has been described as the “most politically unstable place in the Caribbean” with five of the biggest risks being; political, geological, price, and supply and demand as well as cost risk.
The concern of political risk, the government being overthrown, and nationalization were highlighted. Persaud said that Guyana is a place of ethnic politics, but even so this situation “poses no risk to oil companies; in fact, it is obvious that oil companies manipulate the racial divide to their advantage.”
This, Persaud said, is evident in none of the main political party leaders wanting to renegotiate the PSA. Vice President Bharrat Jagdeo comes off like a Vice President of Exxon and not Guyana, as he is always defending the PSA, Persaud opined.
Additionally, he noted that with proven oil reserves of some 11 billion barrels and world demand for oil being strong despite plans for transition to clean energy, the PSA is written in such a way that oil companies recovering all their capital and operational expenses is guaranteed.
“Cost Recovery is capped at 75 percent of revenues, taken off at the top, before profit sharing is calculated. Cost Recovery is done on an expedited scale to the duplicitous advantage of oil companies. Moneys recovered as Cost Recovery are ploughed back to open new oil fields and wells; they perform the role of retained earnings. On one hand working capital steadily expands, but mostly with funds taken out as cost recovery. It is plainly double dipping, doubly benefitting.”
He noted too that while the concept of ‘ring fencing’ has the potential to limit the duplicity – leaders seem unwilling to support the renegotiation.
Why then should Guyanese be concerned with Exxon and partners’ risk, Persaud questioned.
“What chance is there for oil companies not recouping their investment? Zero. Let’s say $2 billion is expended for exploration and no oil is found, what concern is that for the Government of Guyana or Guyanese or this army of pro-Jagdeo/Oil Companies bloggers?”
Oil companies, he said, are heavily capitalized, owned by millions of shareholders and their business model prepares them for those risks.
“Oil companies are multi-billion dollar agencies, why (is) Mr. Jagdeo pre-occupied with Exxon’s recouping its investment? Mr. Jagdeo is VP of Guyana; he should be pre-occupied with getting a fair contract for Guyanese citizens.”
In relation to another oil producing nation, Chad, Persaud related that information is available to show that the generous terms of their contract were required by oil companies to compensate for the exceptional risks they would endure in that country. It was suggested that the same could be said for Guyana with the benefits the companies are receiving from the PSA.
Exxon’s people drafted the contract and inserted the most favourable royalties for themselves, the advocate said.
They also inserted something called a Stability Clause that nullifies the powers of host country’s Parliament since no new taxes can be passed to impact the oil companies’ profits in Guyana as well as tax waived for the life of contract in Guyana.
“Compare Guyana’s with Suriname’s contract – and the scam of the Guyana contract stares you in the face.”
The conundrum, he continued is that average market price moved from US$65 to US$110 a barrel generating billions of windfall profits since the Ukraine war started. The United Kingdom, Canada, USA have or are in the process of levying windfalls tax amounting to billions, but “Poor Guyana owns the resource and is collecting wind,” Persaud remarked.
He said, “those folks – including VP Jagdeo – who want the Guyanese people to be more concerned with “risk assessment” of oil companies investment here in Guyana are deliberately trying to divert our attention away from renegotiation.”
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