Finding that Guyana lost out in an “unfairly exploitative” deal with the 2016 revision of its Production Sharing Agreement (PSA) with Exxon and its partners for the offshore Stabroek Block, international corruption watchdog Global Witness yesterday released the details of an investigation to support its call for government to push for a renegotiation, which it says should also be supported by Washington.
In a report, titled ‘Signed Away: How Exxon’s exploitative deal deprived Guyana of up to US$55 billion,’ Global Witness said that ExxonMobil’s aggressive tactics with inexperienced Guyanese officials saw this country getting only 52% of revenue compared to global averages between 65% and 85% and would see the country losing out on an estimated US$1.3 billion per year.
“The Guyanese government should renegotiate Exxon’s Stabroek oil licence. The government should seek a share of revenue that equates with international standards, increasing Exxon’s financial obligations such as royalty and income tax payments,” the report recommends, while saying that prior to negotiations the government should commission an independent evaluation to determine what the country deserves from the licence.
It also recommends a probe of the negotiation of the 2016 PSA and the role of Natural Resources Minister Raphael Trotman. Additionally, it says that given the global climate emergency and revenues that Guyana stands to receive from the production in the Stabroek Block, where the Exxon-led concession has made 16 finds to date, government should place a hold on new drilling and cancel all other licences and any plans to award new licences.
Both government and the opposition PPP/C have both publicly maintained that they are not open to renegotiating the agreement.
But Global Witness says its investigation points to Exxon aggressively pursuing a new deal in 2016 and seeking to retain the favourable financial terms it had secured in 1999, despite having recently found significant oil reservoirs that would customarily allow the government to ask for more. “In early April 2016, the company opened negotiations in Texas by confronting two inexperienced Guyanese officials with a new draft license to be signed within ten weeks,” it says, while charging that Exxon had threatened to stop developing its oil fields, risking the future of Guyana’s new oil sector and the much needed revenue it would generate, until it got a deal.
Global Witness believes Trotman presented Exxon with “feeble” negotiation terms and ignored expert advice that more financial information was needed before he signed the licence, a short time before one of the company’s largest finds.
‘Exceptionally low’
The US$55 billion figure is based on an analysis by OpenOil, a Berlin-based financial analysis firm hired by Global Witness to model revenues accruing to ExxonMobil and the Guyana under the current plans to produce over 8 billion barrels of oil from the Stabroek concession, using both the existing 2016 PSA and an alternative fiscal regime deemed to achieve a government share of profits more in line with global norms. “It finds that Guyana will receive up to US$55 billion less than it should from the Stabroek license,” the report states, while noting that the analysis focused solely on economic factors and not geopolitical or other strategic considerations.
It finds that under the PSA, government has received “an exceptionally low” share of profits – just 52%, using estimates for prices and costs provided by oil data company Rystad. “If different terms had been negotiated to raise the government take to the middle of the range of petroleum projects, the government would earn tens of billions of US dollars more,” the analysis says.
It notes that if the royalty had been at 10% and standard corporate income tax (CIT) of 25% had been applied, both of which it says are well within international norms, the resulting government take would have been 69%, and Guyana would earn US$55 billion more during the life of the Stabroek field, up until 2056. “On average, Guyana would lose over US$1.3 billion a year over the life of the project from signing in 2016 until expiry in 2056,” it, however, notes.
OpenOil told Global Witness that the amounts Guyana stands to lose annually would vary. “In 2025, for example, it is estimated Guyana will lose US$956 million because Exxon will still be paying off its capital expenditures. However, between 2027 and 2037 – after costs have been paid and when production is at its highest – Guyana could lose an average of US$3 billion annually,” the report states, before arguing that Exxon can afford Guyana increasing its oil revenue share to 69% and that it would still stand to earn a return on its investment of 18%.
“Based on a comparison with oil deals in other countries, OpenOil believes Guyana should receive 69 Percent of Stabroek’s oil revenues, which would be a fair share. Under its current Exxon deal, Guyana receives only 52 percent of oil revenues from Stabroek. As outlined in OpenOil’s analysis, some countries like Israel, Mauritania, and Mozambique do allow companies to drill with a government share of revenues around 50 percent. However, these government shares are low because they are for gas extraction, which has smaller profit margins, and not oil extraction, like in Guyana. IMF surveys show that, for oil licenses, a normal government share would be between 65 and 85 percent,” it adds.
Exxon affiliate Esso Exploration and Production Guyana Limited (EEPGL) holds 45% interest in the 6.6 million acre-Stabroek Block, while Hess Guyana Exploration Ltd has 30% and CNOOC Petroleum Guyana Limited holds the remaining 25%. The PSA between Guyana and the Stabroek Block co-venturers also states that up to 75% of the revenue earned from production could be used for expenses and to recover the companies’ investment (estimated at one point to stand at US$5 billion by 2020), while the remaining 25% – profit oil – is to be split evenly between them and Guyana.
When contacted yesterday, EEPGL Public and Government Affairs Advisor Janelle Persaud said that the company did not have any additional comments at this time and she referred to its previous response to OpenOil.
In reply to a letter from OpenOil in December, the company disputed the firm’s assertions, saying they were “based on hypotheticals and circular reasoning that do not take into consideration Guyana’s status as a frontier hydrocarbon province and fail to acknowledge that the material economic terms were agreed in 1999 and remained in effect in 2016.”
“The conclusions are misleading in that they compare Guyana deep water with mature hydrocarbon producing provinces which naturally have evolved fiscal frameworks reflecting maturity and lower risk profiles,” it adds.
However, addressing Exxon’s claim that when Stabroek was negotiated in 2016 Guyana was a risky “frontier hydrocarbon province,” OpenOil argues that this was not the case. “OpenOil’s analysis evaluates estimates of government revenue share – called “government take” – in over 100 different countries. This includes data from the IMF and other studies. According to OpenOil’s report, in 2016 “the first two wells had been drilled and results evaluated… which substantially de-risked the project.” These wells included Exxon’s first successful find in Stabroek, Liza-1, announced in May 2015 – one year before the 2016 negotiations. “Exxon is correct to say that, in 2016, the company’s 1999 Stabroek license was still valid. However… the size of this license had shrunk dramatically in recent years and would soon expire in 2018. In 2016, it was in Exxon’s interest to negotiate a new license,” the report adds.
Global Witness said that when Exxon late last month announced that it had upped the recoverable oil equivalent barrels amounts to 8 billion, OpenOil wrote again to Exxon to update its analysis but the company did not respond to this second letter. “In both December and January, Exxon was given an opportunity to comment upon the detail of the fiscal model developed by OpenOil and upon which its conclusions have been drawn,” the report states.
Instead, Exxon told Global Witness that the company’s “work and the support of the Government of Guyana are the basis of a long-term mutually beneficial relationship that will soon lead to the production of oil resources in the Stabroek Block and the creation of a significant value for the people of Guyana.”
Seek fair share
“Oil is a risk for Guyana. With aggressive oil companies, government negotiators ignoring expert advice and possibly biased by their own interests, and up to US$55 billion left on the table according to OpenOil’s analysis – Global Witness believes oil may do more harm than good in the country,” it concludes.
“But this can change. Countries like Nigeria and Papua New Guinea have recently called for oil companies to renegotiate the terms of their licenses. Guyana can do the same by negotiating a better Stabroek deal and, given how important the license is to the company’s future, Exxon should come to the table,” it adds, while noting that strategic investment in education, health services, job training, and coastal defenses can drive positive change in Guyana, harnessed to a longer-term vision of managing the oil dividend.
“The country can use oil revenues to build a stronger economy that is not, in the end, dependent upon oil. And because Guyana can receive such significant revenue from just the oil that has already been found, the country can halt other oil production and help fight the climate emergency. Change should happen now,” it further says, while urging government to get to the negotiating table.
Global Witness said that both government and Exxon should reassess the deal, as it urged renegotiation to give the country a “fair share” but this time using experts to guide the decision making processes.
“Negotiations should be undertaken by impartial government officials, drawing upon expert advice,” the report recommends.
Global Witness says government should also investigate the process by which the Stabroek licence was negotiated and should include a review of whether an apparent conflict of interest prevented Trotman from fully negotiating in the best interests of the country.
Also, with the additional revenues available, Global Witness recommends that they can be invested in development priorities and managed within a Natural Resources Fund that incorporates meaningful and transparent engagement with civil society. It says it can also be used to fund ambitions contained in the APNU+AFC’s Green State Development Strategy – ensuring that the country’s economy is stronger and ultimately not dependent upon the oil sector.
Further, it adds that some of the monies from the sector should also be adequately distributed to agencies and programmes to ensure the independence of its anti-corruption agencies. “This should include the Guyana Extractive Industries Transparency Initiative and the State Assets Recovery Agency, the latter of which is currently investigating the process by which the Kaieteur and Canje licenses were awarded,” the report notes.
The report also recommends that no other oil and gas development be done in the offshore region after Exxon’s recent 16th find since the funds raised will be enough for development of the country, as it posits that stopping further exploration and production can help save the environment. Against this background, it says Guyana should also cancel its nine other allocated licences and not award any new licences.
“Global Witness recommends that Guyana bar drilling in all areas other than the 16 finds already made in Stabroek, capping its revenue at the US$223 billion it should receive from just these finds. If either of these scenarios occur, it will be even more important that Guyana spends its oil revenues implementing the Green State Development Strategy,” the report notes.
“In addition to being able to meet immediate development needs and building a new economy, Guyana can also save additional revenues for a time when oil production ceases. In early 2019, the country established a Natural Resources Fund, which could receive additional contributions were the Stabroek license to be renegotiated. This fund could also ensure that future generations gain from oil and that benefits are distributed equitably. However, it is critical that civil society has a say in how the fund is managed,” it added.
Meanwhile, the report also includes Global Witness recommendations for the United States government. It recommends that the US State Department should support Guyana by encouraging Exxon to renegotiate with the country. It further says that given the lack of transparency surrounding the US$18 million signature bonus paid by Exxon to the government, the United States should strengthen a proposed rule implementing Section 1504 of the 2010 Dodd-Frank Act. “This rule should – but currently does not – require that oil companies publish their payments,” it explains.
Blurb for page 21
`Global Witness recommends that Guyana bar drilling in all areas other than the 16 finds already made in Stabroek, capping its revenue at the US$223 billion it should receive from just these finds. If either of these scenarios occur, it will be even more important that Guyana spends its oil revenues implementing the Green State Development Strategy’
