Norton pussyfooting on ring-fencing ExxonMobil oil projects

Jun 10, 2024 News

…says provision will benefit Guyanese but still wants to assess projects first

Kaieteur News – The Leader of the Opposition, Aubrey Norton is still to announce a firm policy position on whether the People’s National Congress Reform (PNC/R) will ring-fence the Stabroek Block projects to ensure Guyana benefits early on during oil production from the revenues generated.

Opposition Leader, Aubrey Norton

After complaining about the lack of information, Norton three months ago disclosed that the party had “most of the data” it needed on ring-fencing. On Friday, the Opposition Leader during his weekly press conference was asked whether the group has reached a final decision on the subject. To this end, he explained, “We have concluded that ring-fencing will serve the people of Guyana. It will help us to reduce the placing of expenditure where it should not be.”

Norton however went on to note that while the Opposition believes ring-fencing would be positive, it would still assess each project individually before making a final decision.

He said, “We still leave open an opportunity to look at every project separately and to decide whether ring-fencing is a positive or not. Generally, we believe ring-fencing is positive but there might be cases where it might not be and so we generally said before and we say it now – we agree for the need to ring-fencing but we would want to have all the data and look at every project on its merit and determine how we ring-fence.”

In the absence of a ring-fencing provision, ExxonMobil, the operator of Guyana’s oil rich Stabroek Block can use the revenue generated at projects currently producing oil to pay for expenses related to other projects.

A ring-fencing provision would therefore ensure only costs related to that project are paid off from those revenues. In this way, more money would be available to share as profits between the government and Exxon.

According to the Production Sharing Agreement (PSA), Guyana inked with ExxonMobil and its partners, Hess Corporation and CNOOC, 75 percent of the monthly revenue will be deducted to cover costs, while the remaining 25 percent will be split equally (50/50) between the parties to the contract. As such, a ring-fencing provision would have allowed Guyana to benefit from half of the revenue generated in a project, after the expenses are repaid.

Presently, Exxon is producing oil from three projects. Without this provision, the revenues are used by the company to develop projects that are yet to start producing oil. Exxon can also use the revenues to fund its oil exploration campaign across the block.

The Government of Guyana has refused to enforce a ring-fencing provision even though its share of profits is significantly reduced monthly in the absence of this key clause.

In fact, Vice President Bharrat Jagdeo previously explained that the country could be left with nothing in the future should such a provision be implemented.

According to the VP, “Thinking in policy making is much more complex, it’s never a linear way – oh ring-fencing can save all the money in the world; ring-fencing could lead now too to us having nothing in the future.”

The Vice President explained, “We admitted that we are foregoing revenue now in exchange for massive future income because it’s going into new projects that will increase production and so even with the same share of the 50/50 plus the two percent royalty that the future income, because of the bigger scale will be massive in Guyana’s case and we are deliberately foregoing that in this period for that purpose and then trying to grab this bone now could cause you to lose all the bones, the bigger bones too in the future.”

While Jagdeo fears Guyana not being able to gain revenue in the future from the sector due to a ring-fencing provision, experts in the industry have urged the nation to include such a provision to ensure it enjoys early returns from the sector.

In three separate reports dated 2017, 2019 and 2019, the International Monetary Fund (IMF) stated: “This asymmetrical treatment of profit and cost oil will benefit the contractor at the expense of delaying government revenue.”

Meanwhile, the United Nations Development Programme (UNDP), along with another international expert, Chatham House and the World Bank called on Guyana to include a ring-fencing provision for each project.

Painting a more graphic picture in one his reports on Guyana was Director of Financial Analysis for the Institute for Energy Economics and Financial Analysis (IEEFA), Tom Sanzillo.

IEEFA estimated that Guyana should receive upward of $6 billion annually by 2028 or sooner, however, the organization believes that due to all of the new costs, Guyana will be shortchanged until the 2030’s, if not longer.

Sanzillo noted, “The lack of contract protections means that every time Guyana announces it has received more revenue it is actually being shortchanged…the country may never see the promised annual revenues in the billions of dollars.”

• Norton, oil, Projects, pussyfooting, ring-fence