Dismissing calls for any renegotiation of the Stabroek Block Production Sharing Agreement (PSA) with ExxonMobil and its partners, Vice President Bharrat on Friday defended the government’s decision not to use the Payara project as leverage to improve the deal as he said it would not be an acceptable business practice.
“Let me make it clear that we were not reviewing or renegotiating the production agreement. We were negotiating a production licence and a permit. Most of the fiscal conditions were established in the Production Sharing Agreement. In this case, we were not negotiating any fiscal conditions; not royalty, not profit sharing, nor anything else. It was the licence to develop a facility in the Stabroek area which is governed by the PSA in 2016. I see a lot of people saying you should have changed the fiscal terms. Couldn’t happen!” Jagdeo told a press conference on Friday.
“Another group believe that we should held up Payara and not issue the licence and use it as leverage to change the PSA. It is wishful thinking, frankly speaking. It is wishful thinking we could have done that now,” he added.
Jagdeo said that government thought it best to sign the agreement as it got most of the changes it wanted in line with the two documents: the environmental permit and the production licence.
He said that his PPP/C party never promised to renegotiate the contract but said that it would review it to determine a number of factors for how it will deal with the sector going forward.
“The PSA deals with all the fiscal terms that will govern every development which has to be licensed separately in the Stabroek Block Area. So to say that I criticised [the 2016 PSA], our criticisms still stand because we believe the agreement did not best serve the interest of our people. We made a commitment in opposition, not to renegotiate—we said that very clear—but to review this agreement, the Stabroek Agreement, to ensure we get more out of that,” he asserted.
It is the first time the PPP/C has publicly and definitively shot down hopes of a renegotiation of the PSA, although ExxonMobil had said in the lead up to elections that both the then APNU+AFC government and the PPP/C while in opposition had promised not to renegotiate and to respect the sanctity of the contract.
The licence agreement was signed on Wednesday, September 30th, while the Environmental Permit was signed on September 24th.
Government said last Wednesday’s signing was done to stay within the company’s timeline for investment commitments and to avoid the risk of this country not being afforded the large investment opportunity.
Pros and cons
But it emphasised that there would be reduced flaring, a 60-day start-up period and studies on the impact of reservoir water dumping; achievements compared to other agreements.
Of significance Jagdeo said, was that unlike the Liza-1 Permit, where there were no costs estimates and details of the project, the Payara agreement required ExxonMobil to submit to the government, within 90 days, the development cost and the operating cost for the Payara project.
Provision has also been made for safety and compliance audits but ExxonMobil will give the government some US$400,000 annually or US$2 million for the five-year period to execute these independent audits.
The thorny issue of flaring was dealt with and the company has up to 60 days for startup but no definitive timeline for commissioning. “Commissioning shall be defined as the process of ensuring that all systems and components are designed, installed, tested, operated and maintained according to the operational requirements or the manufacturer’s specifications. This condition shall also apply to the commissioning of any new units or systems post-production, or the renovation of existing units or systems, which may require flaring. During commissioning, all gas systems must be properly installed, fully leak tested and able to receive gas before start-up,” the licence agreement states.
As it pertains to produced water at the project, the document says that Exxon’s subsidiary, Esso Exploration and Production Guyana Limited (EEPGL) must within 30 days of the environmental permit submit to the Minister and the Environmental Protection Agency (EPA) for approval of terms of reference for a study detailing “the costs, benefits and feasibility of implementing a system for the re-injection of the produced water, save and except in defined unavoidable situations, as the primary disposal methods; and the minimization of the effects of discharging produced water into the ocean in keeping with accepted international standards.” When the minister approves the terms of reference, EEPGL has 180 days to complete the final study.
Jagdeo, when asked about the rationale behind having a study done after a licence and permit have been granted, pointed out that it was for future guidance and decision making.
He said that while critics and environmentalists press for this country to have renowned green standards, they do so from the confines of their “first world” homes and countries and do not realize that this developing country has to weigh the pros and cons to do so and people are struggling for the basics.
“It [the study] would establish the cost structure for future (Floating Production, Storage and Offloading platform) FPSO’s configuration. So assuming that is the next frontier you want to move to in a next development… if they say that configuring the FPSO to reinject costs US$400 million and the Government of Guyana has to carry half of this, then you can make a conscious decision based on the economics of this, if to do or not . Right now we can’t. Exxon gave us some figures but we can’t establish,” he said.
‘Short window’
Jagdeo added that from expert analyses, it is recommended that waiting on making investments decisions at a time when oil markets are crashing was not in the country’s financial interests.
“More so, their assessment, when you speak to ten experts, their assessment of the market investments and what you can do is very very different. There is a large group who believe that oil investment is not taking place in parts of the world given what has happened to the market with COVID. And even in the medium term, it is not that great,” he noted.
“Secondly, a lot of these companies are losing value in stock exchanges etcetera and they are cutting back on their investment. Because if they lose value, they also have to be willing to raise money, etcetera. If the outlook for the market is not that great, the lenders won’t want to lend into the sector and it becomes riskier. I will be frank about this – we want this investment to go forward. Guyana, on its own, cannot raise US$9 billion. That is twice the size of our total economy our whole economy. Our whole domestic product is just over US$4 billion. So we want that because we can’t raise the money ourselves to do that and secondly because there is a stream of revenue that will come to Guyana in the future for its development. I will be frank, we want the development and investments to take place and they are not taking place in many parts of the world. The only way you can get the oil out is to make the investment.”
He said that at a time when there is push for big investments in renewables, it might be best to take advantage of available opportunities in the oil sector while there is still time. “More so now, because there is a short window of opportunity. The renewables are yapping at people’s feet. And there may be technology one day that may cause oil opportunities to cry, assuming there is new breakthrough technology. We want it go forward but we have a duty to protect the people of Guyana. So all those who believe you have great leverage… we could not. Investors share the view that Exxon wants to invest in Guyana because of the quality of our oil and the low breakeven cost they will make money here and the fiscal conditions. We have to go with that,” he said.
