President Ali refuses to budge in seeking more benefits out of Stabroek Block

Nov 13, 2022 News

By Davina Bagot

Kaieteur News – President Irfaan Ali has said that multi-national oil conglomerate ExxonMobil will not be subjected to the new terms announced for future oil blocks, amid calls from the political Opposition and members of civil society for the Administration to move in this direction, given the changed circumstances in the Stabroek Block.

President Irfaan Ali

The Head of State was at the time speaking to Reporters on the side-lines of an event on Friday at the Pegasus Suites and Corporate Centre, when he maintained that the People’s Progressive Party (PPP) will respect the ‘sanctity of contract’ and stay true to its manifesto promise of changing future contracts.

While responding to a question from this publication on whether Government will consider imposing the new Production Sharing Agreement (PSA) provisions on future projects in the Stabroek Block, Ali said, “The Opposition is playing games and politics. They signed this agreement. We went to an election and we got elected based on a number of commitments. Our commitment was that we respect the sanctity of contract for this block. We made it clear that all future blocks will have a different PSA and we have stuck to that commitment.”

Printed on page three of the party’s eight-paged 2020 Manifesto is the promise of “Securing the Benefits of Oil and Gas for All Guyanese”. As part of its plans, the party promised “To ensure that our oil resource is managed responsibly, the PPP/C will: immediately engage the oil and gas companies in better contract administration/ re-negotiation.”

Notwithstanding, the President made it clear that his party will stay “true and faithful” to the commitment it made on the campaign trail.

“We are not like the Opposition…we are not hypocrites, we don’t filibuster. We are very clear in what we want. We are very clear in what we are committing to and we are very sincere to the Guyanese people. We are not opportunist to the Guyanese people. What the Opposition is doing is taking a very opportunistic position- very, very opportunist,” the Head of State remarked.

Further, the President said, “We came in, we said we are gonna respect your contract but the future blocks are not gonna have the same PSA and we stuck through with our promise. Go back and check our Manifesto and check all my speeches.”

Meanwhile, as it regards windfall taxes, the President said it must be understood that Guyana is a newcomer to the oil and gas sector and many countries that are implementing this tax system have been producing oil for decades.

The term ‘windfall’ simply refers to the excess profits being made by the oil companies operating in Guyana as a result of the higher oil prices being earned, due to the Russia, Ukraine war. Globally, countries are moving to tax the additional profits being made on their resources.

Ali also said that in Guyana’s case, the country has an agreement which must be honoured.

“The third thing is that we are now entering a next phase of our oil development or our oil and gas development in which there are a number of things happening on the international markets. Access to capital for projects like these is very difficult. The cost of financing for oil projects is increasing so that is the market conditions under which you are operating,” he explained.

Meanwhile, the Head of State was asked how he feels about the new terms only extending to the smaller oil blocks where oil is yet to be discovered.

To this end, he made it clear, “the answer won’t change. There’s an agreement governing the existing Stabroek Block.” As such, he was asked by Kaieteur News if he is comfortable with those provisions.

He responded: “I never said anything about comfort. In the campaign we acknowledged that this was a lopsided agreement. We acknowledged that the last government did a horrible job but that we have to respect the agreement.”

He explained that oil producing countries around the world adhere to contracts, therefore “regardless of how you shape the question, the answer is the same.”

Stakeholders have been calling on the administration to renegotiate its contract with ExxonMobil especially since the Stabroek Block PSA was signed at a time when only 1.1 billion barrels of oil was discovered.

Six years later, over 10 billion more barrels have been discovered in the country’s Exclusive Economic Zone (EEZ). Not only that, but the oil company has been making massive profits on the country’s wealth, while Guyana refuses to impose taxes and hike the royalty rates from two percent, for example.

Both the People’s National Congress Reform (PNC/R) and the Alliance For Change (AFC) have said that the terms of the new PSA announced by Vice President Bharrat Jagdeo for the 14 oil blocks that are to be auctioned, must apply to the Stabroek Block to level the playing field.

Jagdeo said the new fiscal terms will include a 10 percent royally, 10 percent corporation tax and a ring-fencing provision. He explained that the 14 oil blocks vary in size but range from approximately 1000 square kilometres to 3000 square kilometres, with the majority of them being close to 2000 square kilometres.

Meanwhile, the Stabroek Block which covers approximately 26,800 square kilometres and is operated by ExxonMobil and its partners – Hess and CNOOC – remains bound to a separate arrangement in which it only pays two percent royalty, no taxes and also recovers expenses from multiple projects from the revenue earned by development, in the absence of ring-fencing provisions.

Further, Exxon is allowed to deduct 75 percent of costs from Guyana’s earnings upfront to cover its expenses while the new PSA would cap cost recovery at 65 percent of earnings annually.

While Government maintains that the ‘sanctity of contract’ is the reason for not renegotiating the agreement, it must be noted that the deal was already modified in the past to make it pellucid that royalty would not be recovered by the operator.