Exxon sticking to contract
-advisor says request for astronomical signing bonus would have sunk renegotiation
ExxonMobil is not currently open to renegotiation of the Production Sharing Agreement (PSA) its local subsidiary signed with the Government of Guyana, according to the company’s Public and Government Affairs Advisor Kimberly Brasington, who yesterday said that if a request had been made for an “astronomical” signing bonus, it would have rejected it and stuck with the original 1999 agreement which did not provide for any.
“While I am not going to say no or yes—because you never say never, right?—I am going to say that we believe firmly in that principle that there is real value in the sanctity of a contract,” Brasington said, when asked by Stabroek News if the company was open to renegotiation.
Hinting that a change in contract might turn away investors from Guyana, she added, “There are a lot of eyes on Guyana right now, watching to see how this plays out—if this is a stable environment in which to do business.”
Government late last month stated that the much criticised Production Sharing Agreement (PSA) with ExxonMobil subsidiary Esso Exploration & Production Guyana Limited and partners Hess Guyana Exploration and CNOOC Nexen Petroleum Guyana Limited is final and will not be subject to any changes.
“The president has said it—that we have dealt with the ExxonMobil contract and that we are not going back on it. It was dealt with at Cabinet and the president has pronounced on the matter and that is the final pronouncement as far as we are concerned,” Minister of State Joseph Harmon recently told reporters at a post-Cabinet press briefing. “We are looking at going forward, we are looking at the benefits to be accrued from this contract and from all future contracts,” he stressed.
Since the PSA was released late last year, government has faced searing criticism, particularly over the US$18 million signature bonus it received but kept secret, the 2% royalty negotiated and numerous tax concessions, prompting members of civil society to call for a review of the contract.
It has been argued that since the renegotiations came after Exxon’s discovery of oil in 2015, Guyana should have used this to seek deeper concessions from the company.
Aside from the signature bonus, the modified contract includes an increase in annual rental fees, from US$240,000 to US$1 million, an increase in training funding from US$45,000 to US$300,000 per annum and a new allocation of US$300,000 for social and environmental programmes.
For ExxonMobil, a tenyear agreement which was scheduled to be up in 2018 was extended and the tax regime remains the same as in original 1999 PSA, where it would not pay VAT, excise tax or duties on its operations.
The company can also export all petroleum to which it is entitled free of any duty, tax or other financial impost and can receive and retain abroad all proceeds from the sale of such petroleum among many other benefits.
Binding
Brasington said that she was not opposed to calls for a renegotiation but noted that there was a binding 1999 contract that did not necessitate any renegotiation.
“I am not opposed to the calls for renegotiation, I am not opposed to people standing up for what they believe in but right now ExxonMobil has a contract with this government and we intend to stick to it; we are going to hold up our side of that. We are going to do everything under it and I do hope the government does the same,” she said.
Asked about criticism over the signing bonus, she defended her company, saying that if calls were made for a huge bonus it would have been rejected.
“In the case of Guyana, companies weren’t lining up to explore. If you remember our partner Shell dropped out because the risk was too high. So, when we went in to renegotiate in 2016, we already had a valid contract. We had a signed 1999 agreement that was still valid and so… a signing bonus might have been higher in a country where you were trying to get into for the first time and there were proven hydrocarbons and so you knew that a block and you knew lots of companies have found oil in this block and is your risk is lower... You might be willing to pay a really high signing bonus but in the case of Guyana, we already had the block. It was already ours, it wasn’t a new resource for us,” she said.
“And so if the country had asked for an astronomical bonus, we would have said, ‘No thanks, we would stay with the 1999 agreement, we will just stay with the 1999 agreement.’ It is not apples to apples. You can’t compare ExxonMobil in an
established region to Guyana which is still frontier,” she added.
Brasington said she would not disclose the nature of the negotiations for the bonus but noted that in the end both parties got what they wanted and are satisfied and even if more oil is discovered there was still no possibility of a higher bonus or incorporation of a production bonus to the agreement. .
“There is not a provision for that. The contract is the contract and it [the contract] is for the whole life of the operations. I said earlier never say never but the contract is in place and is for the life of the field,” she said.
“I can’t comment on closed-door negotiations. …What we all know is US$18 million both parties felt fair in the negotiations. ExxonMobil was comfortable and that was fair. Guyana asked for it clearly and so it was reached,” she added, while again stressing that if the country asked for a bigger bonus, the company would have stuck to the original contract.
Brasington did add, however, that the company might look at an increased bonus if it bids for other blocks. “A new contract, perhaps. If ExxonMobil is going to come in and bid on one of the new blocks, there is scope for that [a bigger bonus],” she said.
Annual disclosures
Asked if the company would make annual disclosures of all payments made to government, Brasington assured that it would and noted that discussions are ongoing to have the mechanisms worked out.
“Yes, I can confirm that ExxonMobil is committed to disclosing all payments made to government on an annual basis. The way we hope to do that is… that we are disclosing them to an independent third party that is identified by the government and the government also discloses to that same independent third party the revenues that they are receiving and then the third party is supposed to reconcile in and out and make that public on annual basis,” she explained.
Asked for an assurance to the people of Guyana that Exxon would not inflate expenses under its production cost, Brasington stressed that her company was an ethical one working under United States standards.
“The assurance comes from an American company and being held accountable to the United States’ standards and… [the] Foreign Corrupt Practices Act and all of the tax guidelines that we have to follow as an American company, absolutely,” she said.
“We are not going to do that because it is not ethical full stop…E xxonMobil doesn’t do that, we are an ethical company and we don’t do that,” she added while stressing that since the company incurs the cost, it would be an incentive to keep costs down because there is more for it to gain through the 50/50 profit split.