AFC Leader holds one of the world’s worst oil contracts as a badge of honour

While former Minister of Natural Resources and Alliance For Change (AFC) Chairman Raphael Trotman has conceded that the Stabroek Block Agreement is lopsided and therefore warrants an international investigation, Leader of the AFC Khemraj Ramjattan, is of the belief that that agreement is one of the best decisions the coalition has ever made.

Ramjattan made these and other utterances on Thursday evening on a Facebook prerecorded video, where he told listeners that, “That oil production agreement that we made was one of the best decisions the Government of Guyana under the APNU+AFC made. You had Venezuela coming down on our backs, drawing a line. [President Nicolas] Maduro made a decree that all that water out there belongs to Venezuela… You also had people who were saying that the best thing to do is to bring an American oil company that could take care of the Venezuelan threat; ExxonMobil one of the biggest oil companies.”

To date, there is no evidence to show that that controversy played any part in the deliberations, and that excuse came after the US$18M signing bonus was exposed. Ramjattan even labeled this paltry $18M signing bonus as an achievement, but research has shown this money on the lower end out of similar oil finds.

Ramjattan continued, “We managed to get a better deal than what Janet Jagan signed onto—namely from 1% to 2% royalty and 50/50 profit sharing. This decision was the best decision in my books…. People like the Kaieteur News and Christopher Ram and so on don’t like the idea that we entered; we entered because we were the government of the day, and they can talk all manner of nonsense that they want.”
This contract was kept from the public, for a year and a half after its signing, by the David Granger administration. The then Government had also hid from the public that it received a signing bonus from ExxonMobil, of US$18M, which it kept in a special account.

When the contract was finally revealed and subjected to public scrutiny, it became apparent that its provisions were sub-standard and crafted in such ways that Guyana would suffer significant value leakage. Contentious public debates have been waged for years, including when the contract was highlighted in an early 2020 report by the internationally respected non-governmental organisation, Global Witness.
The non-governmental organization had said that Trotman had ignored expert advice on multiple occasions and had signed the agreement away in a short period. Most importantly, the firm had said that Guyana left US$55B on the table because of its failure to secure a fair deal.

In addition to Guyana giving up the billions of dollars with the current Stabroek contract, there are a number of other issues with the Stabroek Block contract. These include pre-contract costs discrepancies; taxes that are paid by Guyana on behalf of the oil companies; unspecified interest rates expensed to Guyana for loans to the oil entities; weak environmental standards; Guyana’s inability to control the amount of oil being produced; and infrastructure cost anomalies between the Liza One & Liza Two Floating Production, Storage and Offloading (FPSO) vessels.

Notably, Trotman has admitted that he thinks government should have done better with the deal, but that he was instructed to sign the agreement. After years of refusing to clarify who instructed him to sign, it was only a few weeks ago that he offered to Kaieteur News that it was former President David Granger who had issued the instruction.

This newspaper would have published, as one of its investigative pieces, a comparative examination of Guyana’s PSA with ExxonMobil against that of others. It turns out that out of over 130 PSAs this newspaper examined, Guyana’s is in a class of its own.
It is the only one, which has more than a dozen odd provisions all in one place. For example, the PSA sees the government paying the contractor’s income tax out of the country’s share of the profits – none of the other 130 PSAs examined show this arrangement. Further, Guyana’s PSA is the only one out of 130, which has very moderate work obligations for contractors who are vested with offshore licences.

Additionally, the Guyana-ExxonMobil PSA is the only one out of 130 contracts, which has no ring-fencing provisions to prevent costs of unsuccessful wells being carried over to that of successful wells. There is also no sliding scale for royalty to increase as production improves.
Finally, Guyana’s PSA is the only one out of 130 that allows insurance premiums to be fully recovered as well as interest on loans and financing costs that are incurred by the contractors. The 130 PSAs examined are part of a register on www.resourcecontracts.org.

SIDEBAR
A small sample of the almost universal condemnation on various aspects of the Exxon Stabroek Block deal by various international agencies.
Global Witness report, Signed Away: “Guyana is set to lose out on up to US$55 billion from the Stabroek licence – an average of US$1.3 billion per year in a country with an annual budget of US$1.4 billion, according to a new analysis…To get its deal, Exxon employed aggressive and rushed negotiating tactics.”
University of Houston Instructor, Tom Mitro:

In his over 30 years experience in the industry, Mitro said he has never come across a PSA with more troubling provisions than those contained in the Guyana-ExxonMobil deal. The Oil Consultant who is versed in contract renegotiation posited that one may see isolated cases where one or two of the odd clauses are present in other contracts. “But so many, [that is to say, 13 unusual provisions] all in the same agreement is unheard for me,” the University of Houston Instructor stated.
Based on the dozens of contracts he has reviewed, Mitro said that undoubtedly, the Guyana-Exxon PSA stands out as the worst.

Inter-American Development Bank: The ring-fencing arrangement in a PSA framework can constrain the allocation of income and expenditure for profit sharing and tax purposes. With a tight ring-fence, the scope to consolidate income and expenditure across multiple fields is restricted.
However, this is undone by the PSA framework also allowing the contractor to allocate cost oil to any field within the contract area. This asymmetrical treatment of profit and cost oil is likely to benefit contractors with multiple fields within their contract areas at the expense of delaying government revenue.

For example, a contractor with multiple fields can significantly reduce the amount of profit oil to be shared from a producing field by allocating cost oil from various fields under development to the producing field. This could have significant implications in terms of delaying government revenue, especially if a large, multi-field project is developed in phases.