Amid ExxonMobil’s announcement that it has recovered US$55b in investments and Guyana’s oil profits will now be higher, opposition coalition APNU is demanding a “top-to-bottom” review of the Stabroek Block Production Sharing Agreement (PSA) within 180 days.
This is according to A Partnership for National Unity (APNU) spokesperson on the oil and gas industry, Sharma Solomon who also said that the government must independently verify ExxonMobil’s assertion that the Stabroek Block consortium has recovered approximately US$55 billion in investments and disclose how much more profit Guyana should now receive.
Solomon, responding to questions from Kiskadee Watch, said the announcement represented an important development but should not be accepted solely on the contractor’s accounting.
“The Government of Guyana must independently verify the figures and establish precisely what has been recovered, what remains recoverable, and what costs continue to be charged against production,” he said.
Reuters reported on July 31 that ExxonMobil and its partners had recovered the US$55 billion invested in the block since 2014, approximately two years earlier than anticipated.
ExxonMobil’s Chief Financial Officer Neil Hansen told Reuters that the rapid development of the block had allowed the companies to recover the accumulated investment ahead of schedule.
“We brought these investments on at an unprecedented pace and cost advantage,” Hansen was quoted as saying.
Kiskadee Watch on August 1st reported that Guyana should receive a greater share of oil revenues as historical costs decline. Neither ExxonMobil nor the government has provided details on exactly which projects are covered under the US$55m figure and whether the cost bank might not start filling up again with expenses from other projects. The US$55b is believed to cover the Liza-1, Liza-2, Payara and Yellowtail projects but ExxonMobil and its partners have been making continuous investments in other Stabroek Block ventures. It is therefore possible that cost oil will continue to be claimed even if not at the 75% that prevailed from the start of the project.
No arbitrary projection
Solomon cautioned against the government announcing an arbitrary percentage increase in the profit take before the consortium’s accounts had been independently audited.
Under the 2016 Stabroek Block Production Sharing Agreement (PSA), up to 75% of petroleum production may be allocated to the recovery of costs. The remaining 25% is treated as profit oil and divided equally between Guyana and the contractors. Guyana also receives a 2% royalty.
The country’s often-cited effective share of 14.5% therefore comprises the 2% royalty and its 12.5% share of total production derived from half of the 25% profit oil.
“With the reported recovery of the US$55 billion investment, the central question now becomes: how much of current production is still legitimately attributable to recoverable costs, and how much should now move into profit oil?” Solomon said.
He argued that Guyana should receive a substantial improvement in its effective return as historical costs decline, but said the precise increase must be determined from independently verified production, revenue, expenditure and cost-recovery accounts.
“The government cannot simply accept the contractor’s accounting as the final word,” he said. “Guyana must have the institutional capacity to independently verify every dollar of cost and every barrel of production.”
The ExxonMobil-led consortium is continuing to develop new projects, meaning additional recoverable expenditure will enter the accounts even though the accumulated US$55 billion has reportedly been recovered.
The Stabroek Block currently produces more than 900,000 barrels of oil per day and is estimated to contain at least 11 billion barrels of oil equivalent.
ExxonMobil operates the block with a 45% interest, while Chevron holds 30% following its acquisition of Hess and CNOOC holds the remaining 25%. The Uaru and Whiptail projects are expected to begin production this year and next year, respectively.
Reuters said Exxon is expected to book approximately 100,000 fewer barrels per day from Guyana as it enters the third quarter, reflecting the movement of a greater share of production into profit oil.
Top-to-bottom
Solomon said APNU is demanding a “top-to-bottom” review of the Stabroek Block PSA within 180 days, guided by its 21-point plan for managing Guyana’s petroleum resources.
He said such a review should be pursued in keeping with Article 32.1 of the agreement and should seek to maximise the benefits accruing to Guyana while preserving a fair return for legitimate investors.
According to Solomon, the circumstances under which the 2016 agreement was negotiated differ substantially from those prevailing today.
“The scale of the discoveries, production, reserves, investment recovery and economic importance of the Stabroek Block have fundamentally changed the circumstances in which Guyana is now operating,” he said.
“Therefore, Guyana should not simply accept the existing arrangement as immutable.”
Solomon said the review should cover ring-fencing, the petroleum taxation system, environmental and decommissioning obligations, local content, auditing, transparency, reporting and regulatory oversight.
He said consideration should also be given to shared management and decision-making, a national oil company and an oil refinery.
“Our position is not simply that Guyana should demand ‘more money’,” he said. “Our position is that the entire fiscal, contractual, regulatory and operational framework must work in the national interest.”
Solomon said the state should not remain dependent on the contractor to determine the value of the country’s resources, the costs incurred or the revenue owed.
Ring-fencing
The MP said APNU supports ring-fencing each Stabroek Block project to prevent revenue from an established producing development from being used to recover costs associated with another project.
The absence of ring-fencing has been one of the main criticisms of the PSA. Under the existing arrangement, costs from new developments and exploration across the block can be recovered from its overall production.
Solomon said ring-fencing is particularly important now that several developments are producing and more are approaching production.
However, he said it would not, by itself, provide adequate protection.
“Ring-fencing by itself is not sufficient,” he said. “It must be accompanied by strict, independent and technically competent auditing of the contractor’s accounts.”
Solomon said the government must be able to establish whether each expense was actually incurred, necessary for petroleum operations and properly assigned to the relevant project.
The state should also determine whether costs were reasonable, verifiable and consistent with the PSA and whether they included any duplication, misallocation or inappropriate charges involving related companies, he said.
He called for an independent Petroleum Commission, a professional advisory team and strengthened auditing and regulatory capacity.
The proposed advisory team, he said, should include specialists in law, economics, auditing, engineering and geology.
APNU is also calling for real-time monitoring and the timely publication of contracts, agreements, quarterly contractor reports, discoveries, reserves and production information.
“The principle is straightforward: Guyana must know what is being produced, what is being sold, what is being spent, what is being recovered and what is ultimately due to the people of Guyana,” Solomon said.
‘Reveal the true numbers’
Meanwhile, Opposition Leader Azruddin Mohamed made a similar call in a video earlier this week, questioning why the announcement about the recovery of the investment had come from ExxonMobil and not the government.
“This is a significant turning point for Guyana. Guyana should now receive a larger share of revenues from its oil production,” Mohamed said.
He called on Vice President Bharrat Jagdeo to disclose the government’s projections and explain what costs remain recoverable, what percentage of production would continue to be allocated to cost recovery and how new project expenditure would affect Guyana’s share.
“We are calling on VP Jagdeo to reveal the true numbers,” Mohamed said.
Discussion