…says any change would undermine basis for company’s investment
EEPGL President, Alistair Routledge
The parliamentary Opposition have been campaigning that they would review the Stabroek Block contract, but the United States-based ExxonMobil company has poured cold water on any possibility of renegotiating the fiscal terms of the contract.
In a press conference held on Wednesday, ExxonMobil Guyana President Alistair Routledge was asked whether the company was willing to renegotiate its share of profit and royalty with Guyana. Based on Article 32 of the 2016 Production Sharing Agreement (PSA), the Government has to gain permission from the operator in order to renegotiate the terms of the contract.
According to Routledge, however, the company has no interest in invoking Article 32 and entering into renegotiation.
Further, he noted the importance of Guyana maintaining the sanctity of the contract, pointing out that renegotiation would undermine the stability of the investment climate.
“I think we always need to step back and remember that this agreement has been very successful for Guyana in attracting investment in a basin where nobody had basically made any discoveries. It derisked the Suriname drilling, because discoveries had been made in Guyana by the Stabroek block and co-venturers. And we can always cherry-pick that someone has higher royalty or lower royalty, pays this tax or that tax, but it’s about the total amount of revenue that’s generated out of the petroleum agreement; that’s really important. And if you don’t attract sufficient investment, you won’t have the same scale of revenues.
“So, you can have a larger percentage of a small number, or you can have a fair share of a much larger number; and ultimately, that’s more meaningful for the country. That’s where we need to be careful of people just writing things and cherry-picking numbers,” he expanded on his explanation.
According to the oil executive, any change, even an increase in the royalty from the present two per cent to five, would undermine the basis for the company’s investment.
Routledge also defended the present terms of the agreement by noting that it was signed at a time when the risk of investment in the Stabroek block was high.
“The stability of the basis for investment is very important, not just for ExxonMobil, HESS and CNOOC, but I would say for anybody wanting to invest in the country. They want to understand the stability in the fiscal arrangements, in the way those are going to be executed or managed by the GRA or any other agency in the country. Because part of business we all take, we take a certain amount of risk on investments, and we need to understand that is part of factoring in what would be the ultimate return,” Routledge explained.
With elections expected next year, the parliamentary Opposition have been campaigning that they would review the 2016 PSA. For instance, Opposition Leader Aubrey Norton, who is also leader of the Peoples National Congress (PNC), has said that if he becomes president, he would invoke a clause in the PSA which allows Government to engage ExxonMobil.
“We have said Article 32.1 of the PSA provides a wide range of opportunities for us to engage ExxonMobil and increase the benefits for the people of Guyana, and we continue to be committed to that, because the particular article is clear and provides avenues for us to engage Exxon and increase the benefits to the people of Guyana,” Norton had previously said.
The Alliance For Change (AFC) have in the past also made promises to revise the oil deal, though they have since scaled back this commitment following the election of Attorney-at-Law Nigel Hughes as leader of the party.
The PNC-led A Partnership for National Unity (APNU) and the AFC had comprised the Government when the 2016 PSA was negotiated and signed. That PSA has received widespread criticisms for, among other things, having low royalty – a meagre two per cent; lack of ring-fencing provisions, and sweeping cost recovery clauses.
The People’s Progressive Party/Civic (PPP/C) government has since implemented a new PSA for future projects, and that new PSA has increased the royalty from two to 10 per cent; lowered the cost recovery ceiling from 75 per cent to 65 per cent; and maintained the 50-50 profit-sharing ratio after cost recovery. (G3)
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