US Acknowledges Guyana’s Right To Renegotiate Exxon Deal If It So Chooses

(Stabroek News, 10.Apr.2019) — The United States acknowledges that it is within Guyana’s sovereign right to renegotiate the controversial Production Sharing Agreement (PSA)  between the country and ExxonMobil and its partners if it so chooses, recently accredited US Ambassador to Guyana, Sarah-Ann Lynch says.

“We certainly believe that Guyana is a sovereign country so that would be for Guyana to work that out with the private sector to see if there is room for renegotiation. We certainly won’t interfere with that,” Lynch said, when asked by Stabroek News on Monday during an interview she held with the print media at the US Embassy.

She stressed that the decision would be one taken by the government of this country and the US would in no way intervene, as its role is not to be part of any negotiation but to ensure that its businesses are treated fairly. “Our main role in looking at this tremendous opportunity in the oil and gas industry…is that businesses are treated fairly. There is ample opportunity for growth and interaction with the government and mostly that there is a level playing field. That would be our focus,” she said.

While she would not discuss the PSA with ExxonMobil subsidiary, Esso Exploration and Production Guyana Limited (EEPGL), she underscored that the bigger picture should be the vast opportunities that Guyana’s emerging oil and gas sector can bring to this nation.

“But again, I think that there are just tremendous opportunities for the country given the oil and gas reserves. Not just in those sectors but all the secondary and tertiary spin-off sectors and companies that might develop. That might be in manufacturing, in tourism, additional work in agriculture, information and technology …I think there are just tremendous, tremendous opportunities that await this country,” she said, while adding that she was “excited to be here to potentially be a part to witness and be a part of it”, Lynch said.

The 2016 PSA has come under withering attack since it was released at the end of 2017. It contained a 2% royalty figure for Guyana on every barrel of oil which experts said should have been far higher since the deal was concluded post the major oil find in the Stabroek Block. It also caters for a US$18m signing bonus which experts said should have been higher and which the government had hidden until it came under pressure to release the PSA. EEPGL also retains control over hundreds of blocks with the Stabroek Block when the maximum figure should have been 60. A series of other problems have been pointed out with the PSA in addition to the fact that Guyana did not have a single oil expert on its negotiating team.

While the People’s Progressive Party has criticized what it called a “lopsided contract in favour of Exxon”, the David Granger-led APNU+AFC government has remained adamant that it will not renegotiate.

Late last year, Head of the Department of Energy, Dr. Mark Bynoe, was asked by this newspaper if after his analysis of the contract he believes that it should be renegotiated and if he feels the 2% royalty is adequate, given industry standards and the fact that the basin is derisked.  Bynoe stressed that it was important to stick to the original agreement, although contracts “evolve.”

“One of the things we are conscious of is that any review of the existing PSA with Exxon has to be contextualized. Contextualized in terms of investment; volume of the investment made, the risks that were taken and the timing the said investment occurred,” he said.

“That having been said, contracts are on a spectrum and they range from excellent to very poor. What we can say is the current PSA may not be excellent but it is not very poor either and contracts do evolve over time. As a government, we have already expressed the need to honour contract sanctity and we will continue to do that. We will continue to engage, to ensure the value proposition to Guyana increases,” he added.

He pointed out too that while it is bandied around that Guyana’s oil basin is  de-risked, that is not true, as only Exxon’s area has benefitted from significant exploration and that is not enough to conclude it has been “de-risked.”

Oil and Gas Advisor to the Department of Energy and the Government, Matthew Wilks, whose key responsibility is in contract administration and management, agreed with Bynoe, saying that investors have their eyes on Guyana and will make decisions based on how the country approaches the contract.

“Investors watch what is happening with contracts and the whole Guyanese approach to the sanctity of contracts… If you start unilaterally trying to change contracts, you will frighten investors,” Wilks said.

He explained too, that model contracts are designed to reflect the economic and investment atmosphere at a present time. “Model contracts are model contracts. They are the basis for negotiations and model contracts are set in the context of the time in which they are introduced. So, a model contract that is used to try and attract good investment at the onset of the petroleum industry is very different from a model contract as the industry matures and very, very different from a very mature industry,” he noted.

Lynch said that oil presents the catalyst for the positive change that its citizenry hopes for.

She said that Washington is also excited for Guyana meeting the potential that it knows that oil revenues can bring.

At the US Embassy in Guyana, she said that they have been getting “a lot of phone calls… about investing in Guyana and opportunities” those investments can bring. She believes that over the course of the next two years, as this country becomes an oil producer, those opportunities will significantly increase. “I think we are only going to see that increased in the next year or two. So we are very excited about that and promoting Guyana as an investment opportunity,” she said.

And like her predecessor, Perry Holloway, Lynch has urged that going forward, Guyana’s government use the revenues from oil and gas in a smart manner. “I think going forward it is important for the government and people to look at diversifying the economy, reinvest in the people and also invest in biodiversity. It is going to be tough managing expectations. Because as citizens, we hear this, and we are all human, and the thought is ‘this is going to change my life tomorrow’ and that may not be true. It may be true, but it may not be. I would encourage you to look at short term gains but really take the long view in working with these resources in diversifying the economy, investing in its people and infrastructure and I mean more than roads and electrical grid. But education, health systems etcetera and then investing in diversity. It is important you focus on environment. If Guyana focuses on those areas, focus on the long view, they would set themselves for success,” she said.

“I am tremendously excited, energized about being here, about so much going on, so much opportunity, so much possibility and its potentially transformational for all of us to be here at this time. For me, representing the US with such strong partners, with such strong political and economic ties, to be here at this moment, is just beyond exciting. I hope to deepen our partnership with Guyana and take it to a new level to where we see Guyana playing a key role in the region. I think that is going to happen,” Lynch added.

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