BBC grills Exxon over Guyana’s lopsided oil contract
Mar 26, 2024
– told Exxon 10% royalty is the standard while Guyana handed 2%
Kaieteur News – President of ExxonMobil Guyana Limited (EMGL), Alistair Routledge recently found himself in the hot seat, trying to convince a BBC News Journalist that Guyana is not being robbed through the lopsided Production Sharing Agreement (PSA) it signed with the country back in 2016.
Routledge was interviewed by the BBC and featured in its Hard Talk Programme, during the recently concluded Energy Conference and Supply Chain Expo, hosted at the Guyana Marriott between February 19 and February 22, 2024.
The Country Manager for EMGL explained, “When we signed the agreements here there was still a lot of risk very early in the exploration of this basin and indeed, risks are not just geologic risks, when you operate in a new and developing country or different parts of the world, so all of that needs to be taken into account.”
The BBC News Journalist then pointed out that Exxon was only paying 2% royalty to the country, when the norm in other countries where the company exploits fossil fuel, a 10% royalty is paid. Exxon was also told, “The cost sharing agreement with Guyana means you can claim literally billions and billions of cost before you even get to the profit sharing. That kind of deal according to Global Witness, an anti-corruption organization, is robbing Guyana of tens of billions of dollars.”
However, Routledge said this was not the case. “No, no. It’s not robbing the country. What it’s doing is delivering the investment that the country is looking for in a frontier development location where there remains high risk (and) is competing for capital globally.”
The Country Manager told the BBC that Exxon takes all of the exploration risks up front, investing money in the country which then benefits Guyana, not just through royalty but through the profit sharing arrangement. The provisions of the PSA allow ExxonMobil to deduct 75% of the revenues earned each month towards cost recovery or repaying the investments by the company. The remaining 25% is then shared with Guyana as profit, meaning the country receives 12.5% along with a 2% royalty.
To date, ExxonMobil has recovered US$19B out of the US$29B it said it has spent in Guyana. Oil was discovered in the country in 2015 while production only commenced at the Liza Destiny Floating Production Storage and Offloading vessel (FPSO) in 2019. Notably, the Natural Resource Fund (NRF) that was set up to manage the country’ oil revenue has only received approximately US$3.5B since production activities commenced, according to the Bank of Guyana’s 4th Quarter Report for 2023- last updated on December 5, 2023.
Activists for a better oil deal in Guyana as well as reputable international organizations have criticized the Exxon deal for favouring the oil company above the country. Despite calls for the government to engage the company for a renegotiation, the administration maintains that the contract must remain ‘sacred’. In the absence of a key provision, known as ring-fencing, ExxonMobil is allowed to deduct Guyana’s oil money to fund projects that are yet to come on stream. Had Guyana ring-fenced the projects in the Stabroek Block, it would have been receiving greater profits from each of the three projects currently producing oil at more than 600,000 barrels per day.
