GUYANA | Ali Gov’t Under Pressure to Renegotiate Guyana’s Oil Production Contract

GUYANA | Ali Gov’t Under Pressure to Renegotiate Guyana’s Oil Production Contract

GEORGETOWN, Guyana, October 19, 2022 - With the massive increase in oil production output being experienced by Exxon and its partners in the oilfields offshore Guyana, there is increasing pressure for renegotiation of the oil drilling and production contract between the government of Guyana and ExxonMobil.

The Liza Destiny floating production storage and offloading (FPSO) vesselThe Liza Destiny floating production storage and offloading (FPSO) vesselExxon and its partners said they plan to pump 1.2 million barrels of oil and gas per day from the block by 2027. According to the company, Liza Phase 1 is producing approximately 130,000 barrels per day using the Liza Destiny floating production storage and offloading (FPSO) vessel; Liza Phase 2, which started production in February, projected capacity is 220,000 bpd using the Liza Unity FPSO.

The Payara project is expected to produce 220,000 bpd with start-up likely before year-end 2023, and the Yellowtail (Phase 4), is expected to produce 250,000 bpd when the One Guyana FPSO comes online in 2025, the company said.

When the A Partnership for National Unity and Alliance for Change (APNU+AFC) Coalition government signed the oil drilling and production  contract with ExxonMobil in 2015, the Stabroek Block was only one billion barrels compared to nearly 11 billion at present.  This block has had no less than 31 discoveries.

It is felt that at present, a renegotiation is timely in the interest of the people of Guyana.

Civil society has also called for renegotiating the contract as well as ensuring all Guyanese benefit from the oil revenue. Last month, the government announced Guyana is expected to earn US$1.1 billion in oil revenue this year with an expectation of eight lifts of profit-oil for the remainder of 2022.

When in opposition, the PPP accused the Coalition government of not getting the best deal for Guyana at the contract signing, and promised should they return to government they will renegotiate the contract. 

Two years into the People’s Progressive Party/Civic government, no step has yet been taken to renegotiate the contract with ExxonMobil, despite repeated calls from Civil Society and even though there have been numerous finds since their return to government.

However, a recent  statement from the Ministry of Natural Resource  said “the government’s position has been and will continue to be, that the 2016 PSA shared between ExxonMobil affiliate Esso Exploration and Production Guyana Limited (EEPGL) and its partners, remains without a renegotiation in keeping with contract sanctity.” It said that notwithstanding this, the licensing for every new field to be developed since 2020 has seen significant improvements in both environmental and fiscal benefits for Guyana. “This will continue to be the trend for all new investments in the Stabroek Block until the contract renegotiation period is reached,” the statement clarified. Based on the production sharing agreement, the life cycle of the 2016 contract is 20 years. This puts the renegotiating period sometime around 2036, since the document would have been signed in 2016.

A document recently brought to light as an addendum to the 2016 PSA,  highlighted that two years after the A Partnership for National Unity + Alliance For Change (APNU+AFC) government signed the 2016 PSA, it brought Exxon and partners back to the renegotiating table, causing them to put into writing, assurance that they would not be recovering the two percent royalty that Guyana should be getting off the top, as owners of the oil resource.

The following is the statement from the Ministry of Natural Resource:

The 2016 Stabroek PSA will remain uncontended

The Ministry of Natural Resources wishes to reiterate that the model production sharing agreement (PSA) that is currently being developed by the Government of Guyana will garner more economic benefits for the nation and its people.

The government’s position has been and will continue to be, that the 2016 PSA, shared between ExxonMobil affiliate Esso Exploration and Production Guyana Limited (EEPGL) and its partners, remains without a renegotiation as in keeping with contract sanctity.

Notwithstanding this, the licencing for every new field to be developed since 2020 has seen significant improvements in both environmental and fiscal benefits for Guyana. This will continue to be the trend for all new investments in the Stabroek Block until the contract renegotiation period is reached.

The government is fully aware of the amendment made to the 2016 PSA by the former APNU+AFC government, dated April 26, 2019. The amendment saw that ExxonMobil Guyana is disallowed from recovering, through cost oil, the two per cent royalty to be paid to the nation. This modification has been implemented and enforced through the mechanisms on the payments for royalties and cost recovery conditions, and the monitoring features which set out for the governance of the cost bank regarding the projects subject to petroleum operations.

The recent reports in the media present that the 2019 amendment to the PSA sets the precedent for the renegotiation of the entire contract between Guyana and ExxonMobil. The government reiterates that the contract will remain fiscally unchanged for the country and investors’ benefits.

The model PSA being developed will be adapted for all new petroleum activities offshore Guyana – whether it be for exploration or production operations. This includes the upcoming competitive bidding round that the government intends to host in the last quarter of this year and other commercially viable discoveries that will be made in other oil blocks. The 2016 model or any previous PSA will not be applied to any other oil block where a discovery has been made.

The government is of the view, as has been underscored by His Excellency Dr Mohamed Irfaan Ali and Vice President Dr Bharrat Jagdeo, that if specific fiscal considerations are amended in the current PSA, then that could impose unfavourable effects on current and future investments in Guyana, given the current world petroleum economy.

The Government of Guyana respects the investments made by the petroleum consortium in the Stabroek Block and will continue to work assiduously, through various agencies, on every additional license and environmental permit as has been done for Payara and Yellowtail developments. These projects have shown that with the prudent management of the oil and gas sector, Guyana can garner more economic and social benefits for improved intergenerational equity of the local economy.

At a press conference last week, Leader of the Opposition Aubrey Norton made it known that he was open to the government’s renegotiation of the oil contract.

In addition, Norton called for the benefit from oil to have more even distribution, than what he considered presently exists. He joined other sections of the society in leveling charges that the People’s Progressive Party/Civic (PPP/C) elites, friends and family were leading beneficiaries

Norton said President Irfaan Ali was yet to invite the Opposition, which represents half the society, for engagement in developing a national plan that could see wide involvement of Guyanese.

The 2016 Public Sharing Agreement (PSA), provides for a renegotiation of the contracts as outlined in Article 31.2 which states: “This agreement shall not be amended or modified in any respect except by written agreement entered into by all the parties which shall state the date upon which the amendment or modification shall become effective.”

 Leader of the Opposition Aubrey Norton says he is open to the government’s renegotiation of the oil contract. Leader of the Opposition Aubrey Norton says he is open to the government’s renegotiation of the oil contract. According to Matthew Smith, a writer with Oilprice.com, “Guyana has emerged as one of the continent’s top oil producers and is poised to become a leading global energy exporter. Since 2015 an Exxon Mobil-led consortium has made a swathe of high-quality oil discoveries in offshore Guyana in the 6.6-million-acre Stabroek Block, with the latest announced in July 2022. It is estimated those finds have uncovered nearly 11 billion barrels of recoverable oil resources in the Stabroek Block with further oil discoveries to come.

Smith Pointed out that “Exxon, the operator who owns 45% of the block with Hess holding 30% and CNOOC the remaining 25%, is developing the Stabroek Block at a lightning pace. The Liza oilfield, located in the southeast of the block, is currently pumping around 360,000 barrels of crude oil per day from two floating production storage and offloading (FPSO) vessels; Liza Destiny and Liza Unity.”

He noted that “the petroleum pumped from the Liza field is light and sweet, with an API gravity of 32 degrees and 0.58% sulfur content. That makes it easier and cheaper to extract as well as refine. This means Liza-grade crude oil is cheaper and easier to produce as well as refine into high-quality fuels, giving it a lower carbon footprint compared to heavier sourer grades, particularly those produced in neighboring Venezuela.”

The influential Oilprice.com writer observed that “as a result, the oil discovered and produced in offshore Guyana is particularly attractive to global energy companies, which are under considerable pressure to significantly reduce emissions and decarbonize their operations. Industry low costs, as reflected by offshore Guyana’s forecast average breakeven price of $35 per barrel, make the deeply impoverished country one of the lowest cost and hence most profitable jurisdictions in Latin America.”

“These factors have seen offshore Guyana emerge as what industry insiders are calling the world’s most exciting oil frontier. That is driving even greater investment inflows into Guyana’s hydrocarbon sector from foreign energy companies,” Smith said.

“These developments point to Guyana becoming not only a major oil producer and exporter but that it has the potential to amass significant oil reserves. There is even speculation, based on the current rate of drilling success, that eventually Guyana’s oil reserves could overtake Brazil’s, seeing it possess the second largest oil reserves in Latin America and the Caribbean behind Venezuela. Exxon and its partners in the Stabroek Block are ideally placed to profit from Guyana’s rapidly expanding offshore oil boom,” Smith concluded.

Sources: oilprice.com; Matthew Smith;

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