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Guyana all but forfeited $55 billion in a lopsided 2016 oil deal that grants ExxonMobil the right to pump crude oil from an offshore patch called the Stabroek block, says a new report by non-profit Global Witness.
The report injects new urgency into presidential elections coming up on March 2 in Guyana, where the contest revolves around which political party is best equipped to handle the huge inflows of wealth that Stabroek and other offshore blocks under Exxon’s control will unleash. So far, neither the governing APNU-AFC coalition nor the opposition People’s Progressive Party has said that the Stabroek deal should be renegotiated.
Under the terms of a June 2016 agreement, Guyana will take 52% of all the revenues from oil lifted from the 26,800 square kilometer offshore Stabroek block, while Exxon and a pair of smaller partners will take the remainder. Guyana’s share is substantially smaller than the government take in comparable oil license deals, according to an analysis by public policy group OpenOil which was commissioned by Global Witness. A 2012 paper by the International Monetary Fund (IMF) cited in the new report appeared to show that a typical take for oil licensing deals is around 65-85%.
Over the lifetime of the license, Guyana’s 52% take will net the country $168 billion, OpenOil’s analysis said. With what OpenOil called a fairer share of 69% of Stabroek’s revenues, Guyana would net $223 billion — an additional $1.3 billion per year or an overall $55 billion. (Guyana’s GDP in 2017 was $3.7 billion.)
The 27-page Global Witness report does not allege that Exxon exerted undue influence. Instead, it said that a handful of Guyanese officials in charge of negotiating the terms of the Stabroek license — including Raphael Trotman, the minister of natural resources — refused to consider expert advice and didn’t wait to learn the full financial value of Exxon’s discoveries in Stabroek block. For instance, even though Trotman expected that Exxon would announce a new discovery in Stabroek on June 28, 2016, he signed the deal anyway on June 27, Global Witness said. The new find that Exxon announced a few days later would turn out to be one of the world’s largest.
“Based on the evidence seen, Global Witness believes Trotman presented Exxon with feeble negotiation terms and ignored expert advice that more financial information was needed before he signed the license,” the group said, arguing that Guyana should renegotiate it.
Mr Trotman’s office did not immediately respond to a request for comment from Forbes.
Exxon defended the terms of the 2016 deal, telling Global Witness that OpenOil’s analysis unfairly compared Guyana’s offshore region with “mature” and therefore less risky regions. A smaller government take in relatively untested regions reflects the need to offer more attractive terms to create the incentive to explore them, it suggested.
A transformation, whether Guyana is ready or not
The billions in revenue that oil fields in Stabroek and a pair of smaller adjacent blocks are set to produce are certain to transform Guyana, whose small population of 800,000 is among the poorest in South America. The question is whether Guyana is prepared for the massive inflow of wealth. Reports of unseemly dealings have been surfacing for years.
“For years several publications have been reporting on several aspects of the [Stabroek] deal that are below what would be described as the industry standard,” said Kemol King, a reporter with Kaieteur News who covers oil and gas. There have been numerous calls to renegotiate the deal, he said. But so far neither the governing APNU-AFC coalition nor the opposition People’s Progressive Party has backed a renegotiation.
Trotman, the natural resources minister who was one of the key signatories, has defended the deal as providing not just oil money but also maritime security. Guyana’s neighbor, Venezuela, has long laid claim to a region of Guyana called Essequibo, which covers about two-thirds of the country. Venezuela began clamoring more forcefully after Exxon made its first offshore discovery in 2015, since part of the area it claims is in the offshore Stabroek block, according to King. Trotman says that the deal in essence pays Exxon to help provide some security and stability.
Meanwhile the opposition People’s Progressive Party also opposes renegotiating the deal, although it has been critical of it and says it would renegotiate other deals. The party’s general secretary, Bharrat Jagdeo, says that Exxon was a pioneering investment and needed to be offered generous terms to do business in a new, unexplored area. “The company had drilled quite a few prospects before, and nothing came up,” King said. “Jagdeo has committed to renegotiating every other petroleum agreement because they’ve all been criticised as unfair and lopsided. But he maintains that the Stabroek license is the exception…that ExxonMobil, who took on a lot of risk, should be rewarded for the opportunities it has opened up for Guyana.”
International media has tended to focus on the huge size of the oil finds offshore Guyana, not the terms of the agreement of the 2016 license. But there has been some attention. Bloomberg reported in April 2018 that IMF officials believed Exxon had gotten such a “favorable” deal that Guyana should rewrite its tax laws.
