Minister of Natural Resources, Raphael Trotman, has said that he is proud of the contract that the Government of Guyana signed with Esso Exploration and Production Guyana Limited (ExxonMobil’s subsidiary) and its two partners: CNOC Nexen Petroleum Guyana Limited and Hess Guyana Exploration Limited.
The politician expressed that as a result of that contract, every Guyanese will become rich in a few years. Trotman said that the contract allows for Guyana to receive over US$1.5B after five years of oil production and over US$7B over the life of the Liza project.
The Production Sharing Agreement (PSA) with ExxonMobil and its affiliates was signed on October 7, 2016. That agreement was an improvement on the pro forma contract prepared in 2012 during the rule of the People’s Progressive Party/Civic (PPP/C) Administration.
Trotman boasted that the APNU+AFC Government has been able to secure quite a few more benefits. Under the new contract, there is an increase in annual rental fee from US$240,000 to US$1M. There is also an increase of annual training fee from US$45,000 to US$300,000. Government was also able to secure a social responsibility/environmental support with an annual fee of US$300,000 per year.
In addition to this, the USA firm has agreed to give Guyana a two percent royalty, up from the original one percent.
Article 11 of the contract – which speaks about cost recovery and production sharing – outlines that ExxonMobil’s cost recovery is limited to a cap of 75 percent total monthly production. The remaining volume is to be split 50/50 between the Government and ExxonMobil.
Article 12 provides for gas to power mechanisms. It says that if gas is in excess of operational needs, then ExxonMobil gets five years to conduct a utilization feasibility study. That gas requires additional infrastructure and market development.
ExxonMobil officials have said that gas-to-power is being assessed for gas sales under the petroleum agreement. The 50/50 that is to be divided between ExxonMobil and the Government of Guyana is not money, but actual crude.
Further, Article 14 outlines how Government will dispose of its share of oil. It states that Government may request that ExxonMobil markets the Government’s share of oil. The Government may change from that method, but will need to give a six months’ notice if indeed it needs to approach ExxonMobil to market its share.
ExxonMobil country manager, Rod Henson, explained that this method is often selected by countries new to crude marketing for a period of learning.
Moreover, Article 15 deals specifically with taxation and royalty, which states that ExxonMobil shall not be exposed to any Value Added Tax, excise tax or duty. The company shall, however, pay income tax.
Additionally, Article 17 deals with domestic market obligation. Domestic market obligations are the responsibility to supply oil or gas to the local market if government entitlement volumes are insufficient.
Henson said that ExxonMobil is open to exploring the viability of sales with any interested domestic buyers without the need for an obligation. He said that such sales, in any case, will benefit the people of Guyana as the same are subject to the payment of royalty and applicable taxes.
Articles 18 and 19 deal directly with Guyana’s resources and employment training respectively.
These two articles provide local content obligations to give preference to competitive Guyanese goods and services available on a timely basis in the quantity and of the quality required. They speak, as well, to the employment of Guyanese sub-contractors in so far as they are commercially competitive and can satisfy the contractor’s financial and technical requirements.
There are also requirements for ongoing local content review, reporting and submission of a detailed plan with the Ministry. Annually, US$300,000 is to be paid to the Government to provide for Guyanese personnel training on the job at domestic or overseas institutions, university or college courses.
Overall, Henson said that Guyana secured a “fair” contract.
Henson based his pronouncement on the fact that Guyana is new to oil production. Also, Henson said that the agreement it signed with Guyana is globally competitive for countries at a similar stage of exploration.