Conditions are ripe for higher royalty, ring-fencing provision in Exxon contract- Norton

Feb 13, 2023 News

…says Gov’t. acting in oil company’s interest by refusing to change deal

Kaieteur News – With four oil projects already approved, and two presently pending the approval of the Environmental Protection Agency (EPA), the Leader of the Opposition, Aubrey Norton believes that “conditions are ripe” for Guyana to seek changes to the lopsided 2016 Production Sharing Agreement (PSA) the country has with ExxonMobil.

Opposition Leader, Aubrey Norton

He told a news conference on Thursday that any measure that can be taken to plug the abusive loopholes in the contract will be supported by the Opposition.

Norton told members of the media that not only should Guyana be looking to cash in on a higher royalty rate from the oil company operating the prolific Stabroek Block, but steps should also be taken to include a ring-fencing provision.

Ring-fencing provision, for those who may not be familiar with the term, serves as a shield and prevents burdensome expenses from being lumped onto one project, thereby shortening profits received.

While responding to a question from this newspaper on whether he believes the leaders should be chasing a higher royalty rate, the Opposition Leader said, “I think that, like I’ve said before, our major objective has to be to ensure that the people of Guyana benefit as much as possible and any measure that needs to be taken to do that I will support.”

He went on to point out, “We have heard the issue about ring-fencing which we know is needed and therefore that will help in terms of us being able to restrict costs ending up where they shouldn’t be and we believe all of these measures are needed to ensure that we benefit and I think the conditions are ripe in the World for us to do that.”

Norton was keen to point out that developed nations such as the United Kingdom as well as the United States of America (USA) have impressed changes to their oil contracts to ensure more benefit to its citizens even as petroleum companies continue to enjoy increased profits.

He believes that Guyana has earned its title as oil producing nation which means that there are certain key steps the country must take to allow for its people to truly enjoy the fruits of the sector.

According to him Guyana must implement a Foreign Policy that is structured to allow the nation to mobilize support in effecting the much-needed changes to contracts such as the Exxon deal.

On this note, he argued that the People’s Progressive Party (PPP) government is clearly working in the interests of ExxonMobil, by refusing to change the lopsided oil contract. “I think the Government of Guyana is working in the interests of its elites, friends and favourites and in that circumstance, the tendency will be for them not to want to hold ExxonMobil accountable and therefore end up working in the interest of ExxonMobil rather than the interest of the people of Guyana,” he said.

Head of ExxonMobil Guyana, Alistair Routledge has shut the door on the possibility of giving Guyanese the slightest increase in royalty on any of its Stabroek Block projects. He also said ring-fencing must stay out of the contract to encourage investments in the country.

Guyana has been repeatedly warned by international energy institutes that the country may never see the promised annual revenues from its oil sector, as the ‘one-sided’ oil contract gives ExxonMobil and its partners the benefit, leaving Guyana and its people out of their fair share of the wealth.

The contract allows Exxon to deduct 75 percent of the resources each month to cover expenses to develop oil and gas projects. The costs that are not covered each month go over to the following month.

In this regard, Exxon believes, “the current mechanism is very effective.”

Presently, Guyana only receives a meagre two percent royalty, as agreed to in the 2016 PSA. This has been described as one of the lowest rates in the World.

Royalty is a percentage of total production on any commodity, paid to the owner of the resources and are free and clear from any costs whatsoever.

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ExxonMobil, oil, PSA, ring-fencing, royalty

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