A Cabinet-sanctioned review of the circumstances leading to the signing of a new Petroleum Agreement with ExxonMobil’s subsidiary Esso Exploration and Production Guyana Limited (EEPGL) in 2016 has concluded that the agreement was negotiated and executed in accordance with the law though a lot of pressure was placed on government for a speedy signing prior to the scale of the “world class” Liza-2 discovery becoming fully known and understood.
“Overall, the 2016 Agreement contained some improvements in comparison with the 1999 Agreement. The Contractor Consortium was not receptive to any changes and fought hard to retain the same terms as in the 1999 Agreement. There were also changes that were of benefit to the Contractor Consortium,” the review, undertaken by the United Kingdom-based law firm Clyde and Company and paid for by the Government of Guyana, stated. The Contractor Consortium refers to EEGPL, Hess Guyana Exploration Ltd and CNOOC Nexen Petroleum Guyana Limited, the partners in the 26,800 square kilometres Stabroek Block.
“The Contractor Consortium appears to have put a lot of pressure on the Government and the MoNR [Ministry of Natural Resources] to secure the 2016 Agreement in a short time scale,” said the report, dated 30 January 2020.
“The reason given related to commitments for drilling rigs that the Contractor Consortium said would need to be stepped away from if a new agreement was not signed. It seems to us likely that EEPGL were also strongly driving to have a new agreement signed prior to the Liza-2 well results becoming fully known and understood by the Government. Presumably because knowledge of a “world class” discovery could have altered the Government’s negotiating position,” it added.
Questions have been raised as to why Guyana had not awaited the results of the Liza-2 drilling before signing off on the 2016 agreement.
EEPGL holds 45% interest in the 6.6 million acre-Stabroek Block, while Hess has 30% and CNOOC holds the remaining 25%. The 2016 agreement has been the subject of controversy as some have argued that a better deal could have been negotiated as a significant oil discovery had already been made. Recently, anti-corruption watchdog Global Witness said that inept negotiation of the 2016 Production Sharing Agreement (PSA) could have cost the country as much as US$55 billion.
The PSA between Guyana and the Stabroek Block co-venturers 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.
The 35-page report, seen by the Stabroek News, was released on various social media sites minus the annexes that it used as reference and which include vital information needed for independent analysis.
A statement on Clyde and Company’s website said that the firm was retained in September 2019 by the Government of Guyana to “conduct an independent investigation, and prepare a detailed assessment, of the process which led to the signing of the new agreement in June 2016.” On 30 January 2020, the firm said, it concluded its investigation and submitted an independent report on its findings to the government.
Government was up to press time mum on the reason it paid for the report and why it did not make public that it had done so. Several efforts by Stabroek News to contact Director General of the Ministry of the Presidency Joseph Harmon and Department of Energy Director Dr Mark Bynoe proved futile.
Change in approach
The report, through providing a timeline of events, focuses primarily on the role of the MoNR during the negotiations and most of its documents were what were submitted by Minister Raphael Trotman. The report said that it seems likely that ExxonMobil pressed the MoNR to get the new agreement signed prior to formally announcing the result of the Liza-2 well.
“EEPGL may well have feared a change in approach to the negotiations by the Government after the announcement of a “world class” discovery as a result of the Liza-2 well,” it said.
The report raises questions on whether the party that wins the March 2nd 2020 General and Regional Elections will use it as evidence to push for a renegotiation of the 2016 PSA, even though it did not give a recommendation in this regard.
It reminded that the 1999 Agreement and the 1999 License were due to expire in June 2018 and that ExxonMobil had already renewed it for the maximum two times allowed under the Act and that they wanted an extension. It was also noted that ExxonMobil had two months before the 2015 general elections requested that the contract be renewed to give them more exploration time to June 2018.
The report also pointed out that in 2014, four years prior to the expiry of the 1999 agreement, the Guyana Geology and Mines Commission (GGMC) understood that ExxonMobil would not have been in a position to complete all the planned exploration works. However, it does not state if it verified that information with the past government. It said that that its team travelled to Guyana in October of last year and January of this year and interviewed Trotman, GGMC Head Newell Dennison, MoNR Attorney Joanna Simmons Homer and GGMC staffer Christopher Lynch, who had accompanied Dennison to Texas, and former Minister of Foreign Affairs Carl Greenidge.
“We were informed that there were discussions about how to grant the Contractor Consortium further time for exploration operations as early as 2014 in a way which would not cause disruption to the ongoing exploration activities,” it said.
“In March 2015, EEPGL applied to renew the 1999 Licence for the period from 14 June 2015 to the 14 June 2018. EEPGL also requested on 15 April 2015 that the requirement to relinquish twenty five per cent (25%) of the Stabroek Block upon renewal of the 1999 Licence be waived. We did not see any documents confirming that these requests were approved but were told that approval for the renewal without relinquishment was given,” the report stated.
The MoNR and the government, Clyde and Co noted, concluded that a strategic relationship with the Contractor Consortium would be important to the development of oil and gas here and was also of particular strategic significance in light of the ongoing territorial controversy with Venezuela.
“The MoNR and the Government desired that (i) the Contractor Consortium complete the exploration activities such that the full extent of the then evident resources could be identified and later realised; and (ii) EEPGL and CNOOC, as members of the Contractor Consortium continue to act as a deterrent to Venezuela and as a check against the ambitions of Venezuela’s government. Both the MoNR and GGMC had considered various alternative solutions, including expedited exploration. The MoNR in consultation with the Government as a whole reached the conclusion that the best approach would be to enter into a new petroleum agreement and petroleum prospecting licence with the Contractor Consortium,” the report said.
“The procedures followed by the GGMC, the MoNR and the Government reflected the strategic importance placed on ensuring operations on the Stabroek Block continued without interruption and with the Contractor Consortium. Negotiations of the detailed terms of 2016 Agreement were elevated to the MoNR for this reason. Both the MoNR and GGMC made efforts to negotiate the terms of the 2016 Agreement and improve its terms. Notwithstanding their efforts, the Contractor Consortium was not receptive to the amendments proposed. It objected to most of the MoNR’s and GGMC’s proposals,” it added.
On 5 March 2015, ExxonMobil began drilling at Liza 1. On 7 May 2015, the [then] Minister of Natural Resources Robert Persaud, the report said, announced that the Contractor Consortium had struck oil from the well.
Noted too was that on May 11th of 2015, a new government of Guyana was elected following the general elections and 13 days later, on 20 May 2015, EEPGL announced the Liza 1 discovery. The report noted that one week later, Venezuela issued a presidential decree claiming sovereignty over the offshore space.
The law firm said that based on its investigation, there were a number of reasons why the government and the GGMC decided to carefully look at extension of the petroleum agreement. It highlighted the geo-political considerations.
“These included :( a) EEPGL is a subsidiary of Exxon which is the largest US oil and gas company and it is closely associated with the interests of the US government. Hess is also a major US oil and gas company whose interests you would expect the US government to also seek to protect. It seems likely that the government of Venezuela would have to give careful consideration to taking any action (military or otherwise) that would threaten the interests of EEPGL and Hess. Bearing in mind the relative weakness of Guyana’s military (as discussed in Section 6 above), the long history of territorial controversies and the unstable situation in Venezuela, it is entirely reasonable that having a strategic link with US investors was a major consideration for the Government,” it said while also pointing to China’s power in CNOOC.
This position has been articulated by government before including in defending its bargaining of the US$18 million signing bonus.
Continuity
On 19 May 2015, the law firm said, it understands that ExxonMobil sent a proposed “Escrow Process” flowchart, setting out the various steps and timeline for the execution of a new petroleum agreement. This was accepted and is now the current contract.
On 27 January 2016, Trotman was informed by Dennison that the Contractor Consortium was on track to complete 3D seismic surveys by March 2016 and to spud Liza-2 by 1 February 2016. The 27 January 2016 briefing also outlined the possibility that a “new contract area” could be granted to the Contractor Consortium “subject to whatever terms of contract are eventually agreed through negotiations.” In February 2016, the 3D seismic survey of the Stabroek Block was concluded. On 5 February 2016, drilling of Liza-2 commenced in order to further evaluate the Liza-1 well. On 4 and 5 April 2016, the Technical Meeting took place between ExxonMobil and officials representing GGMC in The Woodlands with key individuals from both organisations attending that meeting.
Government, according to the report, could have tried to press for better fiscal terms but from all of their information, that was not the focus.
“The government could have taken a different approach and tried to have extensive negotiations on the terms of the 2016 Agreement, principally to improve the fiscal terms. However, such an approach was not in the forefront of the Government’s mind. The Government was more focused on ensuring continuity with the Contractor Consortium and achieving progress in the Stabroek Block…,” it stated.
“Also, a more hard line approach with the Contractor Consortium would carry the risk that the Contractor Consortium would not have agreed the revised terms and may have relinquished the acreage (outside the discovery areas) in June 2018. This may seem unlikely in the light of all the discoveries made by the Contractor Consortium since 2016, but this was knowledge the Government did not have when negotiating the 2016 Agreement,” it added.
