Trotman ignored experts’ advice of 10-15% royalty – Wall Street Journal report
A Wall Street Journal report on Guyana’s oil industry has revealed that Minister of Natural Resources, Raphael Trotman, refused to heed the advice of experts who advocated for 10-15 percent royalty for Guyana from the Stabroek licence granted to ExxonMobil in 2016.
Minister of Natural Resources, Raphael Trotman
The business-oriented US newspaper noted that Trotman was tasked with negotiating the fiscal terms of the 2016 agreement, and had gotten advice from two experts on what royalty Guyana should demand.
The journal wrote that Trotman had written to a consultant on June 23, 2016 who government hired to advise on oil and gas issues, telling the individual that ExxonMobil asked for an extension of some drilling leases. This was even after the contract was set to expire two years later, and was not legally entitled to a renewal.
Seeing it as an opportunity for Trotman to advocate for a steep betterment of the fiscal terms, the consultant wrote to Trotman on June 27, suggesting that Government should get no less than what it could have gotten if it allowed the contract to expire and opened the field to bidding, the Journal stated.
WSJ said that the consultant proposed a royalty of 10 percent as appropriate for the right to produce Guyana’s crude.
This is not the only advice on royalty that Trotman ignored.
The newspaper wrote that another advisor hired by Trotman had counseled Guyana to ask for a 15 percent royalty, according to two people familiar with the matter. It said that the advisor also suggested Trotman work with a team of 10 or 20 experts on the negotiation.
“The Ministry had only one.”
The Journal went on to state “Unknown to either advisor, Mr. Trotman signed a new deal with Exxon four days later on June 27, 2016, the same day the consultant sent back his suggestions.”
The contract kept the 50-50 production sharing agreement from 1999, with cost recovery of up to 75 percent annually, and upped the royalty not to 10 percent or 15 percent as the consultants had advised, but an industry low two percent.
The lopsided contract has set off a storm of criticism for Government over the years, on the unfair fiscal terms it offers the people of Guyana.
Later, a Global Witness report exposed how Trotman ignored expert advice. Then a Clyde & Co report commissioned by Cabinet exposed how ExxonMobil pressured Guyana into signing the deal in a very short period so that Guyana could not have benefited from an even stronger negotiating position from the release of details on its Liza-2 appraisal well.
The Journal said that ExxonMobil refused to comment on the Clyde & Co. reports finding that it pressured the Government, defending the deal as “globally competitive… at a time where there was significant technical and financial risk.”
Trotman continues to brush off criticisms, even after being stripped of responsibility for the sector.
In an interview with the Wall Street Journal, he said that Guyana is “a nation of skeptics” and that because “we’ve never had anything good going our way… even the possibility of prosperity scares people.”
A line of the Wall Street Journal’s article states that ExxonMobil expects a return of at least 30 percent in Guyana, “more than double the 15% return the industry regards as the lowest necessary to justify investment.”
The result for Guyana, on the other hand, is that Guyana is set to lose about US$55B, according to Global Witness and OpenOil.
Even more worrying, a local chartered accountant, Nigel Hinds, said that the deal costs Guyana as much as US$108B, because of the sheer distance of the fiscal terms of this contract from what Guyana really deserves.