Production Sharing Agreement with Exxon Mobil subsidiary

When questioned about whether the much-criticised 2016 Production Sharing Agreement (PSA) with Exxon Mobil’s subsidiary, EEPGL, would be renegotiated, Minister of Natural Resources Raphael Trotman on Thursday replied in the negative but left sufficient wiggle room.

“I am not at present advised that government has any intention of revisiting that agreement,” Mr Trotman stated, adding “As I have said, when we weighed… what we were getting as against what we are not getting, we decided—as I have said before—that this was what we are going to content ourselves with”.

It was around March, 2017 at a breakfast meeting for the media convened by the government and Exxon Mobil that the public first became aware that the PSA terms had been amended. Then, Mr Trotman had stated that only “minor” “changes had been made to the agreement. It was later learnt that an entirely new PSA had been concluded by the government incorporating what Mr Trotman described as “minor” changes.

In June, 2017, while still withholding the PSA from public scrutiny and preparing for the issuing of the production licence to Exxon Mobil, Mr Trotman provided more information on the amended terms of the PSA.

He said that the original agreement with Exxon Mobil’s subsidiary which was signed by the People’s Progressive Party/Civic government back in 1999 and catered for a subsumed 1% per barrel-of-oil royalty was changed by the David Granger administration and would now take a hybrid format where royalties of 2% of the gross would be obtained.

Further, he explained, “It was 1% paid for by the government. That was inherited. It is now 2% on the gross so we have made a substantial increase.”

He also provided a rationale for the 2% royalty.

“So we received a range of views. In some countries the royalties are low if the take is high, as in this case, where 50% (of the profit share) is high. So it goes on a sliding scale. If you are getting a low take from the profits normally you get a high royalty. In this case you get an equal 50/50 and this was considered reasonable. There are higher (ratios), but this was considered reasonable and fair,” he stated.

After growing questions about whether a signing bonus had been received and amid mounting public pressure, the government then acquiesced to releasing the PSA. However, before the PSA was released, the media had already confirmed that a signing bonus of US$ 18M had secretly been paid by Exxon Mobil to Guyana, raising serious questions about whether the government was really committed to transparency in the oil and gas industry and whether it could be trusted to negotiate with majors such as Exxon Mobil. When the PSA was released the signing bonus was found inscribed at Article 33.

Given the amended royalty, the inclusion of the signing bonus and entrenched provisions such as the stability clause and others as pointed out by commentator Christopher Ram, no language has yet been devised through which the new PSA could remotely be described as having been amended in a minor way relative to the 1999 PSA under the Janet Jagan administration.

The 2016 PSA orchestrated by the Granger administration at the behest of Exxon Mobil constitutes a major revision of the terms of the deal with EEPGL and with all the analyses so far, Guyana has come out far worse than it should have. When the 1999 Janet Jagan government signed the PSA there was little expectation of finding any oil given the decades of failed exploration which included the French company, Total in an offshore bid. However, by the time of the revised agreement in 2016, the Liza-1 well was a world class find and one didn’t have to have a Eureka moment to know that there was likely a chain of lucrative wells in the Stabroek Block as was later borne out.

Therefore, when Minister Trotman and the various government functionaries under Cabinet fiat essayed to alter the terms of the 1999 PSA it was their bounden duty to ensure that the benefits accruing to this country were ramped up in a manner commensurate to the stunning potential of the area. That was clearly not the outcome Guyana got. There have been only trifling improvements and the quantum of the royalty and the signing bonus have been seriously questioned. For its part, Exxon Mobil will have enlarged prospecting opportunities, a stability clause that limits this country’s right to judiciously legislate for the oil and gas sector and the obscenity of having its taxes paid by the minister. There are also grievous deficiencies in the ring-fencing of costs among other accountability weaknesses.

For the country, this matter is far bigger than Minister Trotman. It pertains to President Granger and his entire government. They failed collectively to ensure that skilled and negotiators were contracted to face Exxon Mobil once a decision was taken to clinch a new agreement or to amend the 1999 one. This is inexplicable, inexcusable and a gross dereliction of duty.

Minister Trotman has also repeatedly used the argument of contentment and plenitude to fend off concerns that Guyana was not sufficiently compensated in the 2016 PSA. While contentment is an admirable attribute of human nature it has no applicability in the context of being entrusted with securing the national patrimony for future generations and in the face of the voracious reach of behemoths like Exxon Mobil who in this instance will end up creaming off the benefits beyond Minister Trotman’s contentment benchmark. The Minister has further cloyingly defended Exxon Mobil for taking a risk on Guyana. Exxon Mobil is the ultimate venture capitalist. It doesn’t operate on sentiment but cold, hard calculation of risks and returns and this is what led it to these waters.

Undoubtedly, Exxon Mobil knows that it got a steal of a deal from the APNU+AFC government. It is now the obligation and duty of the Granger administration to bring Exxon Mobil’s subsidiary back to the table to rectify the stark imbalance entrenched in the 2016 PSA.