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FM
Former Member

Uganda, other nations guard against payment for unsuccessful exploration …Guyana’s Government could have done same

Feb 04, 2018 News, https://www.kaieteurnewsonline...ould-have-done-same/

When it comes to the discovery of oil, nations across the world have experienced a number of challenges; one of them being the bill presented by operators for unsuccessful operations.

Natural Resources Minister, Raphael Trotman

Fortunately, many nations like Uganda and Indonesia have learnt from the mistakes of their counterparts. In this regard, these nations have ensured that there are strict clauses which specifically state that oil companies are not allowed to recover such costs prior to the date of production. It therefore means that the operator must bear the cost of exploration.

One can see a glaring example of this in the Production Sharing Agreement (PSA) that was signed between the Government of Uganda and British operator, Tullow Oil. That entity is also exploring in Guyana’s deep waters.

In that PSA, the Government categorically states, that the oil operator cannot recover costs incurred before the effective date of the contract.

But Guyana’s case is quite different. There is no provision in Guyana’s contract with USA oil giant which safeguards against this. Hence, ExxonMobil was able to ensnare Guyana in the oil agreement with a US$460M bill.

This can be found in Annex C of the contract which speaks to Cost Recovery. The bill is referred to in the PSA as “pre-contract cost.” The pre-contract cost includes contract costs, exploration costs, operating costs, service costs, and general and administrative costs and annual overhead charges.

UNSUCCESSFUL EXPLORATION
Newcomers to the oil and gas industry are often obsessed with one thing—billions of dollars in revenue.

Issues like adequate ring-fencing provisions quickly fade into the background of nothingness.

More than 80 countries worldwide have not only paid dearly for such a mistake, but the future of their governments and generations to come will be haunted by it.

The lessons of these nations were adequately summed up by the World Bank in one of its many reports on the sticky issues of exploration. In one of its documents, Fiscal Systems for Hydrocarbons, the World Bank explains that ring-fencing is an industry-specific feature. This refers to the demarcation of taxable entities.

The World Bank said that while corporate income tax normally applies at company level, in the petroleum sector the taxable entity is often the contract area or the individual project. When ring fencing applies at contract area or project level, income derived from one area/one project cannot be offset against losses from another area/project.

Another type of ring fencing separates upstream from downstream operations. Usually, all costs associated with a given block or licence must be recovered from revenue generated within that block: the block is ring fenced.

The World Bank emphasised that the objective of ring fencing is to protect the level of current tax revenue and, to some extent, level the playing field by treating newcomers and existing investors equally.

It noted that the disadvantage of ring fencing is that it does not incentivise exploration and investment activities. The Bank stated however, “by allowing costs to cross the fence, the host government may end up subsidising unsuccessful exploration.” (More in this regard can be read by following this link: https://openknowledge.worldban...t0181.pdf?sequence=1).
ExxonMobil has already announced that the Liza one was the discovery well in 2015. Since then, it has successfully drilled Liza 2, 3 and 4 which helped the company to understand the size of the accumulation of oil and gas. It has noted that Phase one of its production will include at least 17 wells. It said that this will help develop part, not all of the Liza field.

In August 2016, ExxonMobil drilled their “Skipjack” exploration well but no commercial quantities of hydrocarbons were found.

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Uganda, other nations guard against payment for unsuccessful exploration …Guyana’s Government could have done same

Feb 04, 2018 News, https://www.kaieteurnewsonline...ould-have-done-same/

UNSUCCESSFUL EXPLORATION

Newcomers to the oil and gas industry are often obsessed with one thing—billions of dollars in revenue.

Issues like adequate ring-fencing provisions quickly fade into the background of nothingness.

More than 80 countries worldwide have not only paid dearly for such a mistake, but the future of their governments and generations to come will be haunted by it.

Trotman & group are gleefully leading Guyana into this situation.

FM

I wonder if at the time the Coalition government was feeling happy and lucky that they were getting a chance to revise the contract with ExxonMobil (which got them the $18M bonus), ExxonMobil was setting a trap for the Coalition government to pay the $400M+. ExxonMobil made out like a bandit with their crafty $400M+ return on their $18M investment.

FM
ksazma posted:

I wonder if at the time the Coalition government was feeling happy and lucky that they were getting a chance to revise the contract with ExxonMobil (which got them the $18M bonus), ExxonMobil was setting a trap for the Coalition government to pay the $400M+. ExxonMobil made out like a bandit with their crafty $400M+ return on their $18M investment.

Oil contracts are very complex things and often kept secret. Only recently has watchdog organizations began to use the courts to peek behind the veil and see the onerous ways oil companies has systematically enriched themselves on the back of poor nations. Rich nations also get tricked. Norway had no experienced with oil in 74 but the first year after first oil the but a wedge in the wheels and restructured their arrangement. They are now one of the only nation that has actually benefited from oil and their reserve cash now exceeds a trillion dollars and investments here is earning more than oil itself.

Britain share the north sea with Norway and they on the other hand got shafted. It is said britain earned some 500 billions less for its oil ( similar output as Norway) than Norway.

The eagerness for wealth is what causes the mistakes. We are in the same place as Norway was in 74 and can take advantage of her experience. Unfortunately, out totalitarian governments often make decisions for us as if they are all wise and we get shafted. It began with Janet Jagan giving away leases for no money beyond what she is allowed to give away per the constitution. Jagdeo then proceeded to do the same. We do not have any area off shore that is not claimed by some oil company ( some only oil companies in name).

We do not have first oil yet and we are beginning to cheat and steal. First money was 20 million and the Granger government immediately hid it away.  We cannot pay severance to rice farmers, repair critical infrastructure and yet Granger said they already allocated that 20 million for "defense".

 

They are clamoring about a sovereign wealth fund without addressing immediate needs. That again is a trickster's game. They will hand that fund over to the pollards as fund managers  and the only ones who will get rich  here is , ironically burnham's pickney. Add to that the government will swell some 100 times over with each ministries having pet boutique projects. Stupid coolies and the unfortunate amerindian will be begging for soup!

Chalk all of this up to the stupid craven coolies in the PPP who believe they will never lose and they can kick black people about as they see fit and not suffer any consequences. Granger is primed to game the next election if it does not appear to be going his way and those Kleptocratic bitches in the PPP is in the dog house again. None of  the leaders in that cartel should ever present themselves for office. They are a bunch of dump asses who has ruined us enough. We will have to suffer through Granger and the APNU another two decades!

 

FM
D2 posted:
ksazma posted:

I wonder if at the time the Coalition government was feeling happy and lucky that they were getting a chance to revise the contract with ExxonMobil (which got them the $18M bonus), ExxonMobil was setting a trap for the Coalition government to pay the $400M+. ExxonMobil made out like a bandit with their crafty $400M+ return on their $18M investment.

Oil contracts are very complex things and often kept secret. Only recently has watchdog organizations began to use the courts to peek behind the veil and see the onerous ways oil companies has systematically enriched themselves on the back of poor nations. Rich nations also get tricked. Norway had no experienced with oil in 74 but the first year after first oil the but a wedge in the wheels and restructured their arrangement. They are now one of the only nation that has actually benefited from oil and their reserve cash now exceeds a trillion dollars and investments here is earning more than oil itself.

Britain share the north sea with Norway and they on the other hand got shafted. It is said britain earned some 500 billions less for its oil ( similar output as Norway) than Norway.

The eagerness for wealth is what causes the mistakes. We are in the same place as Norway was in 74 and can take advantage of her experience. Unfortunately, out totalitarian governments often make decisions for us as if they are all wise and we get shafted. It began with Janet Jagan giving away leases for no money beyond what she is allowed to give away per the constitution. Jagdeo then proceeded to do the same. We do not have any area off shore that is not claimed by some oil company ( some only oil companies in name).

We do not have first oil yet and we are beginning to cheat and steal. First money was 20 million and the Granger government immediately hid it away.  We cannot pay severance to rice farmers, repair critical infrastructure and yet Granger said they already allocated that 20 million for "defense".

 

They are clamoring about a sovereign wealth fund without addressing immediate needs. That again is a trickster's game. They will hand that fund over to the pollards as fund managers  and the only ones who will get rich  here is , ironically burnham's pickney. Add to that the government will swell some 100 times over with each ministries having pet boutique projects. Stupid coolies and the unfortunate amerindian will be begging for soup!

Chalk all of this up to the stupid craven coolies in the PPP who believe they will never lose and they can kick black people about as they see fit and not suffer any consequences. Granger is primed to game the next election if it does not appear to be going his way and those Kleptocratic bitches in the PPP is in the dog house again. None of  the leaders in that cartel should ever present themselves for office. They are a bunch of dump asses who has ruined us enough. We will have to suffer through Granger and the APNU another two decades!

 

Welcome back D2.  Nice summary illustration of the facts and realities!

FM

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