By Melinda Janki
Melinda Janki is an international lawyer and an attorney-at-law in Guyana
In 2016, Raphael Trotman, the Minister responsible for petroleum signed a Petroleum Agreement with three oil companies – Esso Exploration and Production Guyana Ltd.(Esso), Hess Guyana Exploration Ltd. (Hess) and CNOOC Petroleum Guyana Ltd CNOOC). These are not the big international companies but their offshore subsidiaries, which have fewer assets. Esso is a subsidiary of ExxonMobil Corporation.
Public pressure forced the government to release that Petroleum Agreement in December 2017. Everybody in Guyana knows that it is a horrible deal. In 2018 the Leader of the Opposition Bharrat Jagdeo called it “a contract that would harm us for decades into the future.” Even the International Monetary Fund, that infamous defender of rapacious foreign capital, has told the government (as reported in Bloomberg) that the terms of the 2016 deal were, “relatively favorable to investors by international standards”.
In plain English, the three oil companies take 87.5% of Guyana’s oil. Guyana gets 12.5% of Guyana’s oil. This is literally oil, not money. Guyana has to sell the oil to get cash. Under Article 15.6 of the agreement the oil companies pay a royalty of 2% on the oil produced and sold. They are also supposed to pay a licence fee of US$1M. They pay nothing else, not even tax. No amount of propaganda from the government or Esso, can fool the masses of Guyanese people into believing that this is a good deal.
The PPP/C government took office in August 2020. On 27th August 2020, Alastair Routledge, the head of Esso, said, “Contract sanctity is a fundamental principle of doing business worldwide, particularly in the oil and gas industry, to allow for certainty when making significant, long-term investments.” The PPP/C administration accepts without question this idea of sanctity of contract and dismisses renegotiation. The President of the Georgetown Chamber of Commerce and Industry has also stated that the GCCI ‘adheres’ to sanctity of contract and Guyana should not try to renegotiate. Either the proponents of ‘sanctity of contract’ don’t know what it means or they are being insincere.
‘Sanctity of contract’ stops ONE party from changing the terms of a contract by itself. If you agree to do something you must do it. You cannot change your mind and tell the other person that you will not do what you promised. ‘Sanctity of contract’ means that the Government cannot change the Petroleum Agreement by itself to give Guyana a better deal, and then tell Esso, Hess and CNOOC that they have to accept the new terms. That kind of bad behaviour is a classic ‘breach of contract.’ It is not a renegotiation.
People can make agreements and change agreements provided everybody who signed the agreement says okay. This is freedom of contract. It is a fundamental legal principle. It is right there in the Petroleum Agreement. Article 31.2 says, “This agreement shall not be amended or modified in any respect except by written agreement entered into by all the Parties…” The Petroleum Agreement can be changed right now if the Government, Esso, Hess and CNOOC all agree to change it. “Sanctity of contract” does not stop them from changing (‘renegotiating’) the Petroleum Agreement.
But why would Esso, Hess and CNOOC renegotiate? People seem to think that Esso, Hess and CNOOC should renegotiate because the contract is so bad for Guyana. But the more abusive, exploitative and unfair the Petroleum Agreement is for Guyana, the better it is for the oil companies because they make more money. Oil companies come to Guyana to make as much money as they can, as fast as they can, before the fossil fuel sector collapses. The oil industry deals in money, not morality. It is merciless in pursuit of money. These are the people responsible for global warming, heatwaves that kill people and animals, climate system breakdown such as the massive hurricane that just shocked Florida, and the rising sea level that scientist predict will put Georgetown under water by 2030 etc. These are the people making the ocean more acid with their greenhouse gas pollution. They don’t care about their children, their grandchildren or their homelands. And it ought to be obvious that they don’t care about Guyana. They don’t care if Guyana ends up with a gas to shore facility that cannot supply energy because there is no gas coming through the pipeline. They don’t care if Guyana has to pay billions of US dollars to shut down hundreds of deep-water wells so they don’t leak and kill marine life. That’s just business, especially if countries have pro-oil governments and lax regulators.
Some people believe that the Petroleum Agreement was renegotiated in 2019. It was not. President David Granger signed a document called a “Deed of Amendment” with Esso, Hess and CNOOC. This deed said that the 2% royalty to Guyana is not deductible as a contract expense. This is not a change. A royalty is not a cost, expense or expenditure relating to prospecting or production. The royalty is a percentage based on oil produced. Esso, Hess and CNOOC did not give away anything by agreeing that the royalty was not a recoverable cost. They stated the obvious. This should not be confused with the quite separate issue of deducting the royalty for tax purposes under tax laws.
Oil companies know infinitely more about the petroleum industry than the government does. Who is going to represent Guyana in any ‘renegotiation’? The Government? A consultant? This is the same government that let Canada, a country that is addicted to fossil fuels, inflict the disgraced Alison Redford on Guyana for the Payara negotiations.
What does the renegotiation lobby want? On a recent panel, someone mentioned the lost “US$55 billion.” This fanciful figure comes from Global Witness who said that Guyana should renegotiate for an additional US$55 billion because under the Petroleum Agreement, “Guy-ana will receive US$168 billion instead of the possible US$223 billion it would get with a deal closer to other countries.” Global Witness’ numbers are wrong. They say they used ‘analysis’ by Open Oil. Open Oil misunderstood the Petroleum Agreement. They made the schoolboy level error of confusing ‘profit’ with ‘profit oil.’ Profit is an accounting term. Put simplistically it is the money you have left after you subtract your costs from the money you got from selling something. Guyana’s oil profit is the money Guyana gets from oil minus all the costs. Modern accountants know how to quantify and account for destruction of mangroves, loss of fisheries, social cost of greenhouse gas pollution etc. in order to work out Guyana’s profit. ‘Profit oil’ is a contract term. The contract says that 25 barrels of oil out of every hundred is called ‘profit oil’. Guyana gets half (50%) of that ‘profit oil’. That is 12.5 barrels. It is 12.5% of every 100 barrels of oil produced. It is not profit. It is just a share in the oil that has been produced.
Global Witness were warned that their interpretation of the contract and their figures were wrong. They then launched their false figures in a tsunami of international publicity. A strong coalition of Guyanese citizens demanded that Global Witness justify the US$168bn and US$55bn or withdraw their report. Global Witness withdrew their report. The Open Oil ‘analysis’ has also quietly disappeared.
So, what else is wrong with the numbers? Global Witness assumed that Esso would produce 7.9bn barrels of oil which would be sold at US$65 a barrel giving US$513.5bn. Guyana’s share is 12.5% of production plus 2% royalty. That 14.5% share would be just under US$74.5billion. That’s US$93.5 billion short of Global Witness’ US$168 billion for Guyana. You would have to guarantee Guyana an oil price of US$146 a barrel year after year for Guyana to get US$168bn. Demanding a globally witless figure of US$55bn doesn’t take renegotiation very far. Furthermore, if Esso, Hess and CNOOC decide to renegotiate, you can bet Guyana’s entire oil reserves that they will demand more for their investors, not hand over their profits to Guyana.
Renegotiation has also distracted attention away from the grave danger to Guyana when the regulator does not enforce national law. Offshore deep-water drilling is an extremely dangerous activity. Dr Vincent Adams the former head of the EPA has repeatedly warned that Esso’s petroleum operations are unsafe. He has said that they are in breach of their permit, international standards and the law. He has pointed to the use of defective equipment, operating above the safety limit of the FPSO, oil spills and the failure of the Environmental Protection Agency to enforce permit conditions and national law. The oil spill maps in Esso’s environmental impact assessments show that oil could end up in the Caribbean. There is no guarantee that it will not happen. The Macondo well blowout cost BP and its partners about US$71bn. A well blowout in Guyana’s waters could cost Guyana a lot more if it harms Caribbean tourism and fishing.
In 2018, the peoples’ movement A Fair Deal for Guyana – A Fair Deal for the Planet was launched to make the government and oil companies obey the laws of Guyana. Some believe that oil can make Guyana rich. Some say the oil should be left in the ground. But all agree that the relevant authorities should protect Guyana by making sure that there is full compliance with the contract (sanctity of contract) and national law (the rule of law).
Guyana does not have the technical people who can properly oversee and regulate a petroleum sector. We need an urgent and independent assessment of what is going on and it should be done by independent international experts. For the safety and security of the people of Guyana and the Caribbean all unsafe petroleum operations should be halted. Operations should not restart unless there is full compliance with permits, national law and all other terms and conditions necessary to protect the people of Guyana. That is the only way to get a fair deal for Guyana and a fair deal for the planet. The renegotiation lobby would have more impact if they directed some energy to upholding the rule of law.
