Loophole in Stabroek Block deal gives Exxon power to revise gas terms for more benefits

Oct 01, 2023 ExxonMobil, News, Oil & Gas

Kaieteur News – Exxon’s new focus on gas development has the potential to turn into another grave controversy, underscoring once again, the grave unfairness of the Stabroek Block Production Sharing Agreement (PSA) signed in 2016. That lopsided contract allows the oil company to squeeze out fiscal terms that are even more lopsided than the current terms.

The Stabroek block, perceived by many to be disproportionately in favour of oil giants ExxonMobil, Hess, and CNOOC, has been under scrutiny for years. With ExxonMobil shifting priorities from oil to gas, the controversial terms of this contract are once again at the forefront of concern.

The crux of the matter is not just about the discovery or extraction of gas, but about whether the arrangement will be equitable. The fiscal terms of the Stabroek Block Production Sharing Agreement have long been contentious. Key points like the 2% royalty rate, the 75% cap on cost recovery, a 50-50 profit-sharing model, and the effective waiver of taxes have been heavily criticized. Furthermore, the stability clause hinders Guyana from independently seeking a renegotiation of these terms, making it even more contentious.

The contract’s non-associated gas clause may further complicate things. This provision allows ExxonMobil and its partners a potential opportunity to negotiate even more favourable terms.

It states, “When the Contractor has provided Notice to the Minister… of a Non-Associated Gas discovery within the Contract Area that is of potential commercial interest, the Contractor shall inform the Minister whether the Contractor believes such discovery is potentially commercial under the current Agreement terms, or if Contractor requires revised fiscal terms or contract terms under the agreement to proceed with a Development Plan.

“The Contractor shall propose revisions to the Agreement to the Minister as the basis for entering into good faith negotiations on revised terms that can provide the Contractor with a commercially competitive return on investment for development of the Non-Associated Gas discovery.”

In other words, this provision gives Exxon the power to bring the government back to the negotiating table to secure more benefits on gas exploitation that are in the company’s favour. Unlike the Stabilization clause in the contract, this leaves no room for the government to be in agreement or not. It also shows that the contract makes room for renegotiation, but only if it benefits the contractor.

Given the criticism already surrounding the existing fiscal terms, such negotiations could exacerbate concerns about the contract’s fairness.

The Government of Guyana has shown its willingness to tap into the country’s offshore natural gas resources by working on its first-ever national gas strategy. Meanwhile, ExxonMobil, after having discovered an impressive 11 billion oil equivalent barrels offshore Guyana, has begun to redirect its focus from oil to the promising gas reserves.

A clear indication of this shift is ExxonMobil’s recent utilization of the Stena DrillMax for drilling at Haimara-2, aiming to validate the gas resources in the Haimara field. This comes after the company’s significant discovery at Haimara-1 in 2019, where the company found a rich 207-foot high quality gas condensate-filled sandstone reservoir.

With the Stabroek Block holding an estimated 17 trillion cubic feet of natural gas, industry stakeholders have already said it is clear why the attention is shifting. But as Vice President, Dr. Bharrat Jagdeo, warned, if ExxonMobil is not proactive in monetizing these gas reserves, Guyana might seek more interested parties.

The focus on gas indeed reinvigorates the discussion about the Stabroek Block PSA’s fairness. Stakeholders believe it is crucial for Guyana to ensure that the vast offshore resources are exploited in a manner that equally benefits both the nation and its oil partners.

• benefits, controversy, ExxonMobil, gas, power