‘I don’t feel bad about Guyana’s oil deal’

Aug 06, 2024 News

…ExxonM negotiator tells Bloomberg of lopsided contract

“I have examined my conscience about it over a period of time, but I don’t feel bad about it…It was a complete fit for what we knew and what we didn’t know,” Rod Limbert, geoscientist and former Exploration Manager for South America for ExxonMobil

Kaieteur News – Former Exploration Manager for South America for ExxonMobil and geoscientist, Rod Limbert was quoted in a recent Bloomberg article stating that he does not feel bad about the oil deal Guyana signed onto with the United States oil giant.

Former Exploration Manager for South America for ExxonMobil, Rod Limbert

U.S based media company, Bloomberg in a recent report, “The untold story of how Exxon scored a US$1 trillion oil bonanza that 30 rivals passed up” by Kevin Crowley, highlighted the story of the Stabroek Block which is now producing over 600,000 barrels of oil per day from just three projects ( Liza Phase 1, Liza Phase 2 and Payara). Exxon controls the block that holds 11 billion barrels of recoverable oil, worth nearly US$1 trillion at current prices.

Limbert was part of Exxon’s team that negotiated the Production Sharing Agreement (PSA) for the Stabroek Block which was later signed in 2016 by the previous APNU+AFC administration after oil was discovered offshore Guyana in 2015.

The PSA for the prolific Stabroek Block has been at the center of contentious debates with experts as well as citizens citing that Guyana signed onto a deal that benefits the oil companies more than the country. While Guyanese leaders have long accepted the lopsided nature of the deal, it remains in place as, ExxonMobil Guyana Limited (EMGL) and its partners Hess Guyana Exploration Ltd. and China National Offshore Oil Corporation (CNOOC) Petroleum Guyana Limited continue to benefit from it.

Former Minister of Natural Resources, Raphael Trotman, who served under the APNU + AFC Coalition government between 2015 and 2020, was the one who signed the heavily criticized lopsided PSA with Exxon. The 2016 deal gives Guyana an industry-low 2% royalty. Presently, Guyana shares revenue with ExxonMobil after the company deducts 75 percent towards the costs incurred to develop the resources in the Stabroek Block. This arrangement, with the lack of ring-fencing, sees Guyana paying for projects that are yet to begin production activities. Each month bills from future producing developments are added to the list of expenses to be cost recovered by Exxon. After the 75 percent is deducted to pay back the oil company, Guyana then shares 50/50 of the 25 percent remaining with Exxon as profits. This amounts to 12.5 percent of profits from the operations.

Bloomberg reported that Guyana has become the bedrock of Exxon’s post-Covid corporate revival. The Texas oil giant has a 45% share of a field that costs less than US$35 a barrel to produce, making it one of the most profitable outside of Organization of the Petroleum Exporting Countries (OPEC). With crude currently trading at US$85 a barrel, the oil field would make money even if the transition from fossil fuels caused demand to collapse and prices dropped by half.

The report states that Exxon’s rivals no doubt have aching regret. Almost 30 other companies, including Chevron Corp., passed up the chance to buy into the Guyana discovery. Shell Plc, previously a 50% partner, walked away. Chevron is now paying US$53 billion for Hess Corp., which has a 30% stake in the project. Exxon this year filed an arbitration case against Hess, claiming it has a right of first refusal over the stake. (Hess says that right doesn’t apply in a merger.)

It was reported that like many geoscientists, Limbert knew that the source rock for Venezuela’s oil—the La Luna formation—extended under the Atlantic into maritime territory held by Guyana, Suriname and French Guiana. The straight-talking Australian became fascinated with an onshore discovery in Suriname in the 1960s, when villagers accidentally found what became a billion-barrel oil field while drilling for water in a schoolyard.

Limbert thought the schoolyard’s oil had originated off Guyana’s continental shelf and migrated more than 100 miles onshore over millions of years. He took the idea to the Exxon team responsible for entering new basins in mid-1997. “They had a picture of a downward-pointing thumb at the end of their presentation,” Limbert says. He contacted Guyana’s government about acquiring drilling rights anyway. “I just didn’t tell anyone,” he says.

In 1997, Guyana was one of the poorest countries in South America, still suffering from the socialist and isolationist policies of strongman Forbes Burnham, who rose to power soon after independence from the UK in 1966.  Limbert and two colleagues flew from Houston to Georgetown to acquire old well logs and discuss the potential for drilling rights with the Guyana Geology and Mines Commission (GGMC).

“The ground floor was literally the ground floor,” Limbert says. “By that I mean the desks and chairs were on the dirt.” The Exxon team also met Samuel Hinds, Guyana’s president at the time who talked mostly about cricket, Guyana’s national pastime. “I wasn’t in any particular hurry to talk about business, because I had no authority to do anything,” Limbert says. On returning to Texas and armed with fresh data, Limbert won permission to begin contract negotiations for exploration rights.

Citing the legions of failed wells, Limbert pushed for and won a highly favourable deal. The Stabroek block offered to Exxon was more than 1,000 times bigger than the average oil block in the Gulf of Mexico. It required no upfront payment, and if Exxon struck oil, the company would keep 50% of the profit after deducting costs.

The Bloomberg report states that Guyana later received heavy criticism for the contract. “I have examined my conscience about it over a period of time, but I don’t feel bad about it,” Limbert says. “It was a complete fit for what we knew and what we didn’t know.” It was stated too that the deal helped the government in another way. Guyana faced serious border disputes both with Suriname to the east and Venezuela to the west. Aligning with Exxon would mean anyone picking a fight with Guyana would also be picking a fight with the world’s most powerful oil company.

• Exploration Manager, ExxonMobil, geoscientist, Guyana, Rod Limbert