Guyana to publicly release all oil contracts
Guyana will from now on publicly release all contracts it signs with oil and gas companies, ”as part of its commitment to accountability and transparency in the oil and gas industry.”
Still a non-oil producing country, Guyana was recently placed on the world oil map by a string of large offshore oil discoveries made by ExxonMobil in the giant, 26,800 square kilometres large, Stabroek Block, offshore Guyana.
The U.S. company has started working on the first phase of the Liza field development. The field, to be developed using an FPSO unit, is expected to start producing in March 2020, producing up to 120,000 barrels per day.
Guyana and ExxonMobil entered into an agreement in July 2016 which will see Guyana receiving a 50/50 profit and a two percent royalty.
Worth noting, the government has come under public criticism after the local media reported on Exxon paying a “low” signing bonus of $18 million to renew its exploration agreement. The lack of transparency surrounding the deal, and the account, “a special account with the Bank of Guyana outside of the Consolidated Fund”, to which the money went, was also criticized.
End of January
Minister of Natural Resources Raphael Trotman said on Thursday that the Ministry would begin publishing the contracts by the end of the month, saying that decision follows a national interest in the new sector. Last year, the government released the Production Sharing Agreement between itself and ExxonMobil.
Trotman said: “We remain committed to releasing all contracts in the natural resources sector. I can say as well, letters have gone out to the petroleum companies…the responses received so far have been that there is no objection to the release.”
Also, the Natural Resources Minister dismissed recent criticism published in the local media of the Exxon contract. He noted that concessions in the Production Sharing Agreement (PSA) follow industry best practices and norms.
“I challenge anyone to check any part of the world where there are contracts of this nature… countries invariably offer concessions to companies to come to their countries, it is done for bauxite it is done for gold,” the minister added.
The Minister noted that there are various risks involved when a company invests in a country that is new to a resource, in this case, Guyana, and its oil. “You give concessions for imports…it was done for all of the other oil companies,” he explained.
According to the statement, the government is creating legislation and policies to govern the oil and gas industry before oil production in 2020.
Contract with ExxonMobil
The renegotiated contract was signed in June 2017 between the government, ExxonMobil, and its partners in the Stabroek block. It was released in late December of last year. Upon signing the renegotiated deal, the Ministry was paid a bonus of $18 million.
The deal exempts Exxon from paying corporation, excise or value-added tax (VAT) on its earnings from petroleum. Also, a provision in the agreement between the parties states that the government has to pay the company’s income tax. To facilitate this, the oil company has to submit tax returns to the government.
Article 32 of the contract stipulates that the government cannot modify the contract or increase any fiscal obligation the company has.
The article said: “If at any time after the signing of this agreement there is a change in the laws of Guyana […] and such a change has a materially adverse effect on the economic benefits, including those resulting from the fiscal regime provided by this agreement […] the Government shall promptly take any and all affirmative actions to restore the lost or impaired economic benefits to contractor, so that contractor receives the same economic benefit under the agreement that it would have received prior to the change in law or its interpretation, application or implementation.”
Not all of the provisions are beneficial strictly for Exxon. One of them includes a fund for social and environmental projects with a contribution of $300,000 per year to this fund.
The contract sets aside another $300,000 per year to ensure local personnel are trained at universities and conferences overseas or in Guyana. There are also provisions for a continuous review of local content. It is worth noting that Guyana is entitled to half the value of resources sold from the block.
ExxonMobil’s first oil find in the Stabroek Block off Guyana was made in 2015.
Recently, ExxonMobil revealed positive results from its Ranger-1 exploration well, marking the company’s sixth oil discovery offshore Guyana. The Ranger-1 well, drilled by the Stena Carron drillship (photo), adds to previous world-class discoveries at Liza, Payara, Snoek, Liza Deep, and Turbot, which are estimated to total more than 3.5 billion recoverable oil-equivalent barrels.
Minister Trotman recently said that when oil production starts in 2020, Guyana would get close to $1 million per day, meaning it would earn around $300 million a year “which is as a result of what some may determine to be a modest royalty rates, but it is significant because this is money that does not come from a grant or a loan or it is not the fruits of taxes. This is money that will accrue to us daily.”
On December 29, Minster Trotman revealed that when oil production begins in 2020 the government is expected to receive about 12,000 – 14,000 barrels of crude daily. The administration is still to make a final decision on how it will refine and market the crude oil.
Offshore Energy Today Staff