6. Guyana. Concerns about arrangement with ExxonMobil


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Guyana Discoveries & Prospects – MapStand Ltd. 2008

Serious concerns about Government’s arrangement with ExxonMobil need urgent answers

6. Guyana. Serious concerns about Government’s arrangement with ExxonMobil need urgent answers – V210817

Contents (3) :

0. Arrangement Guyana Government with ExxonMobil –

How much money would Guyana get from ExxonMobil’s offshore oil production? – Note Marcel Chin-A-Lien – July 29, 2017

1. Serious concerns about Govt.’s arrangement with ExxonMobil need urgent answers. – July 3, 2017

2. ExxonMobil contract review. We have a right to review any contract – Trotman tells Jagdeo – June 30, 2016

0) Arrangement Guyana Government with ExxonMobil – How much money would Guyana get from ExxonMobil’s offshore oil production?

The contents of the arrangement that the Guyana Government in 1999, has signed and apparently recently renegotiated with ExxonMobil, has never been published.

Therefore there is a lot of uncertainty and public discussions on transparency going on regarding this important item.

This to know how much money Guyana would get from its offshore production.

In 1998 Guyana signed an arrangement (PPL) with CGX.

My educated-guess is that the arrangement signed with ExxonMobil in 1999 could resemble the arrangement signed previously with CGX.

The contents of this PPL can be found by researching Internet publications.

The Petroleum Prospecting License (PPL) was signed between CGX Energy,Inc.(Company) and the Government of Guyana (Government) on June 24, 1998.

The main articles are:

Cost recovery production allocation is as follows.

Maximum Cost Recovery is 75% during the first 3 years, afterwards 65%.

Profit Oil Split (Developer Share): During the first 5 years, 50% for the first 40,000 b/d. And 47% for Production above 40,000 b/d. After 5 years, 45 % for all production.

The Developer does not pay income tax. The PPL provides that the income tax is paid from the Government’s share of the profit oil.

The Company has an exemption from VAT, exercise taxes, duties, fees, levies and from property tax.

The Company does not pay royalty. This is considered to be included in the Government’s share of profit oil.

Training expenses of US$ 40,000 per year are required, only during the exploration period. These are qualified as exploration expenses.

Annual license rental payments of US$ 40,000 per year are required during the exploration and production period.

In my opinion this represents a very good deal (arrangement) for the Company.

And a rather ” inconvenient deal ” for the Government.

Tip that can benefit a country with billions of US$:

Always be so diligent to first design, negotiate and only later sign your own PSC.

Customised with those clauses and articles you wish to have.

Consult e.g. with a clever and seasoned PSC and E&P specialists and advisors with worldwide experience. Once signed it is extremely difficult to change and adapt it substantially.

From what I perceive from publications the Government did recently renegotiate the original PPL with ExxonMobil and obtained somewhat better conditions.

Including a royalty and a 50% – 50% overall share.

One would assume that the original 1999 PPL was rather favourable for ExxonMobil. Given that it was signed in a period when there was relatively little interest of IOC’s in offshore Guyana.

As is usual in such cases and in high risk, still non-oil-proven basins, it is to be assumed that Guyana has granted rather favourable (“soft”) conditions to ExxonMobil. In order to attract exploration investments with a clear work program, including seismic and drilling.

Now that it has become a proven basin, it is a different ball game.

Contracts with new entrants could be negotiated with a much better share for Guyana.

By focussing on items such as the royalty percentage, ring fencing, the ceiling for cost recovery. By drastically optimising its profit share, from the ‘ profit oil “, immediately after the IOC has recouped its investments from the ” cost oil ” .

Financial engineering, valuation and cash flow modelling, in tandem with the expected production profiles from the fields are fundamental in this respect.

The main objective of Guyana should be to maximise its petroleum wealth by encouraging appropriate levels of offshore activities.

To this end Guyana must design a robust fiscal system with for example the following characteristics. It should provide a fair return for both the state and the international companies. It has to be clear and avoid undue speculation, just as is now frequently surfacing in the press. Administration has to be efficient without undue rules, permits and burdens. At the same time it should provide enough flexibility and create a healthy, competitive competition and market efficiency.

A much different Petroleum Sharing Contract is certainly highly recommended in my opinion.

How much money would Guyana get from ExxonMobil’s offshore oil production ?

Assuming that the ExxonMobil PPL contains the same articles as the PPL with CGX.

This is a simple estimate of the monies involved. But it gives a fair idea of what everyone wants to know.

Precise data can be obtained by making a full economic analysis.

Assumptions are:

A gross oil production volume of 1,5 billion barrels, average production of 160 million/day during 13 years, oil price US$ 50 / barrel, Capex-Opex 11 billion US$, initial production in 2020:

Total oil revenue would be some 75 US$ billion.

Total profit oil is 68 billion US$.

Guyana Government profit share is some 36 billion US$. This amount would be received in the period 2020 – 2033.

Payout is successful in about 4 years.

The economics of the Liza – Payara – Snoek giant fields development is thus highly profitable, with an IRR exceeding 100%.

Marcel Chin-A-Lien – Advisor Petroleum Exploration & Production, Business-Commercial-Policy Development, PSC’s.

1) Serious concerns about Govt.’s arrangement with ExxonMobil need urgent answers.

Jul 03, 2017 News,www.kaieteurnewsonline/2017/07/03

• Is there a ceiling for cost recovery in any given year?
• How does the Govt. of Guyana intend to validate the costs?
• What were the duties and tax concessions granted?

By Abena Rockcliffe- Campbell

There are many questions that remain unanswered about Guyana’s arrangement with oil giant ExxonMobil and some of the country’s leading minds are becoming antsy about what this really means.
Prominent Attorney Nigel Hughes, who is also a Director of Guyana Oil and Gas Association (GOGA), recently delivered a presentation at an international academic conference hosted by the University of West Indies Law faculty. Hughes’ presentation was titled “Guyana’s new frontier.”
At that forum, Hughes highlighted that there is a deficit of information in the public domain about key issues regarding Guyana’s arrangement with ExxonMobil.
Hughes gave the attendees a synopsis of Guyana’s journey to where it is at present. He went as far back as to Independence and travelled all the way to the announcement of the oil discovery in 2015 – then to government’s announcement of the two percent royalty Guyana is to receive form ExxonMobil when oil production begins.
Hughes told the conference that after the initial announcement of the Liza-1 find, locals began voicing concerns about the management of the oil resource.
“Some chatter began locally about the management of this resource. What shape the developmental plans for the country will take and exactly what part of the newly discovered resource would Guyana benefit from?”
The Attorney noted that on June 1 this year, government announced that it is expected to grant a production licence to Exxon.
“The release stated, the production licence is required to be finalized before the developers make their final investment decision for the project in June 2017.” The production licence has since been granted.

Attorney-at-Law Nigel Hughes

Hughes continued, “Extraction from the Liza field is expected to commence in 2020 at an initial rate of 100,000 barrels per day in the first phase. Not only an ambitious schedule to production but perhaps unprecedented.”
He said that the government also announced that Guyana will receive a royalty of two percent of the gross earnings and benefit from 50 percent of the profits from the sale of petroleum once production commences.
Hughes noted that what was not announced, however, was whether there was a ceiling for cost recovery in any given year. Yearly cost recovery ceiling would refer to the amount of money which government and ExxonMobil agree that the company will take out from the yearly revenues generated in order to recover its investment. The amount of money agreed on will reflect in Guyana’s yearly piece of the pie. It has already been established that Guyana is supposed to get 50 percent of the profit and two percent royalty.
Case study: If ExxonMobil receives $100 per year and takes out $70 for cost recovery purposes that would leave only $30. Two percent will then have to be taken out for royalty and the remainder is to be divided 50-50. Therefore, cost recovery ceiling is an important factor in getting to understanding just how much Guyana will benefit yearly.
Hughes also pointed out that there has been no indication whether cost recovery is a percentage of revenue.
The Attorney at Law also told the conference that Guyanese are yet to be told how the government intends to validate the costs ExxonMobil has incurred. This is important, as the possibility of inflated cost cannot be ruled out.
Hughes said too that “there is also an absence of any information on key variables including life of the project in years, the total investment, the annual fixed cost per year, estimated cost of a barrel of oil for the project, and whether any duties, tax concessions were granted.”
Guyana has had a history of granting huge tax concessions. This practice was notorious under the rule of the People’s Progressive Party/Civic government. Of course, it is a practice around the world for investors to be granted concessions. But the level of concessions usually matches the benefits that the country is expected to receive. Assessments are usually done in this regard. But that is not usually the case in Guyana. There has since been proof in some cases that companies imported items that had nothing to do with the projects they proposed.
Hughes, during his presentation also told the students about the call made by the Working People’s Alliance (WPA) for more information to be put in the public domain
He said, “One of the parties in the Governing Coalition called on the Government to publish the contract.”
He noted too that the Chairman of the WPA, in a letter to President David Granger said, “There is no justifiable reason for not publishing this contract. Seeking public comment on it is our democratic obligation. And engaging the widest possible sharing of views can only help the coalition government to make wiser decisions.”
Nigel Hughes
Jul 03, 2017 News,www.kaieteurnewsonline/2017/07/03

2) Exxon Mobil Contract Review… We have a right to review any contract — Trotman tells Jagdeo

Leader of the Opposition, Bharrat Jagdeo.

Moments after being criticised by the main Parliamentary Opposition’s Leader, Bharrat Jagdeo, the Minister of Natural Resources and the Environment, Raphael Trotman, fired back. He described Jagdeo’s comments as nothing but “trash”.

Earlier yesterday during a Press Conference hosted by the People’s Progressive Party/Civic (PPP/C) at the party’s Headquarters in Robb Street Georgetown, Jagdeo heavily criticized the move made by Trotman to review the 1999 Exxon Mobil contract.
The Opposition Leader told media operatives that the review of the contract will create a passage for corruption to enter into the Ministry.

He claims that there is poor management of the Ministry by a “mediocre” and “incompetent “Trotman.
Last evening Minister Trotman dismissed Jagdeo’s claims and said that the Government has a right to review any contract signed by the PPP Government and what Jagdeo is saying is nothing but trash.
“The government has a right to review any contract that the PPP has signed. We have that right to do so and I think what they are worried about is when we start reviewing contracts, they will be embarrassed. So that is a right that we have as government,” Trotman said.

Jagdeo also stated that it always raises concern when Ministers or politicians involve themselves in negotiations with companies, particularly oil companies.

Such engagements he added, lead to politicians selling out national interest.
He called on the Minister to explain the reason for the review and state whether more concessions will be given. Jagdeo explained that the oil and gas sector will be an important sector and the State should get the best agreement possible.
Trotman dismissed the Opposition Leader. He said that he would never expect to hear anything better from Jagdeo.
“Jagdeo being a Former President and “attacking” a ministry is an indication that the “ministry is hurting him”.
“Gold is up, diamonds are up, bauxite is up, timber is doing well and we’re about to declare oil so that is what has him vexed.”

Trotman also stated that Jagdeo may be “upset” because the Norwegians ignored his request to cut off the Norway funds from Guyana. He indicated that Norway has in fact, decided to continue.
“So he cannot point to any sector; any component of the Natural Resources saying that it is in trouble. He can say what he wants; we are well advised; we have international experts advising us but we will exercise our rights as a sovereign state and as a government. He is no longer President. He is the leader of the opposition and he has to remember who he is. So let him earn his salary there,” Trotman said.
The Minister concluded if Jagdeo is serious about debating this issue in Parliament, he is most welcome to “any day”.


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