Venezuela threats influenced oil contract with Exxon

…UK law firm says gov’t renegotiation above board

AN independent investigation into the Government’s signing of the 2016 Petroleum Agreement with ExxonMobil has further discredited previous reports that Minister of Natural Resources, Raphael Trotman was influenced by a “lavish Exxon meeting” into the signing.

The report, conducted by UK-based global law firm, Clyde & Co, showed that the signing was influenced, in part, by the government’s intent of maintaining a strategic relationship with ExxonMobil and its partners as the country’s territorial integrity was at threat by neighbouring Venezuela. Noting several other factors, the report concluded that “the 2016 Agreement was negotiated and orderly executed in accordance with the [Petroleum] Act and the Regulations.”

The report is another which discredits portions of a recent report by investigative company, Global Witness, which theorised — without proof — that Trotman, who signed the Exxon deal in June 2016, has possibly been compromised. Clyde & Co was contracted by the Ministry of Natural Resources on September 2, 2019, to conduct an independent investigation into the decision-making processes and systems leading to the signing of the 2016 agreement and report on its findings. It presented the report on January 30, 2020.

The Company outlined that the investigation took on four phases which included documentation enquiries and online searches; interviews /additional documentation; draft report /additional information and the publication of the report. Interviews were had with Trotman; former Minister of Foreign Affairs, Carl Greenidge; Head of Guyana Geology and Mines Commission (GGMC), Newell Dennison; Legal Adviser to the Minister, Joanna Simmons-Homer; and Petroleum Division, Christopher Lynch. “The investigation was conducted by us on an independent basis as we had no prior involvement in relation to the 2016 Agreement with the MoNR (Ministry of Natural Resources), GGMC or the government,” the Company stated.

THE VENEZUELA THREAT
In its report, the Company recounted that in June 2018, the 1999 Agreement and the 1999 Licence were due to expire and the Contractor Consortium — Esso Exploration and Production Guyana Limited (EEPGL), Hess Guyana Exploration Limited (Hess) and China National Offshore Oil Corporation (CNOOC) — had already renewed the 1999 Licence twice (in 2012 and once in 2015) which is the maximum number of times allowed under Guyana’s Petroleum (Exploration and Production) Act.

“The MoNR and the government concluded that a strategic relationship with the Contractor Consortium would be important to the development of oil and gas in Guyana and also of particular strategic significance in light of the ongoing territorial controversy with Guyana’s neighbouring country, Venezuela,” the report outlined.

It explained that the government’s and the ministry’s desire was to see the Contractor Consortium complete their exploration activities so that the full extent of the then evident resources could be identified and that EEPGL and CNOOC would continue to act as “a deterrent to Venezuela and as a check against the ambitions of Venezuela’s government.”
In December 2018, Guyana’s territorial integrity was violated when a Venezuelan Navy corvette – the Karina PC-14 – made a hostile incursion into Guyana’s Exclusive Economic Zone (EEZ). The incursion took place at approximately 144 kilometres (km) from the boundary which separates Guyana from Venezuela and saw attempts by the Navy corvette to land a helicopter on the unarmed oil survey ship.

In a firm statement, the Ministry of Foreign Affairs rejected Venezuela’s aggression as a violation of the Charter of the United Nations and general international law. President David Granger noted, too, that in 2013, a petroleum exploration vessel – RV Teknik Perdana –conducting a survey in the Roraima block offshore, was intercepted by a Venezuelan Navy frigate and ordered to cease its activities. “Incursions have occurred not only in our maritime space but also on land. Illegal mining, illegal logging, illegal arms, narcotics, people and wildlife trafficking and the smuggling of precious minerals have continued; they have to stop,” the President insisted, adding: “Incursions must be deterred; insurrections must be suppressed; the State must remain secure.”

Meanwhile, EEPGL is a subsidiary of Exxon which is the largest US oil and gas company closely associated with the interests of the US government; Hess is also a major US oil and gas company whose interests are likely to be protected by the US government and CNOOC is China’s third-largest state-owned oil company.

EXXON OBJECTED
The report indicated that while the ministry and the GGMC had considered various alternative solutions, including expedited exploration, consultations with the government concluded that the best approach would be to enter into a new petroleum agreement and petroleum prospecting licence with the Contractor Consortium.

The Company said that both the ministry and the GGMC made efforts to negotiate the terms of the 2016 Agreement and improve its terms but the Contractor Consortium were “not receptive to the amendments proposed” and “objected to most of the MoNR’s and GGMC’s proposals”.

The Company’s report showed that the Contractor Consortium put pressure on the Guyana Government to swiftly secure the agreement for several reasons which benefitted the oil company. The report disclosed: “The Contractor Consortium appears to have put a lot of pressure on the government and the MoNR to secure the 2016 Agreement in a short time scale. The reason given related to commitments for drilling rigs that the Contractor Consortium said would need to be stepped away from if a new agreement was not signed.

It seems to us likely that EEPGL were also strongly driving to have a new agreement signed prior to the Liza-2 well results becoming fully known and understood by the government, presumably because knowledge of a “world-class” discovery could have altered the Government’s negotiating position.”

However, the report indicated that, overall, the Agreement contained improvements in comparison to the 1999 Agreement. It noted an increase in royalty payments which was double the royalty in the 1999 Agreement and would be paid from the Contractor Consortium’s share and not the government’s share of production. The Company also highlighted the rental charges and the $18 million “signature bonus” noting that it was a “positive development in the country’s petroleum contracting history” as this was the first time that a contractor had agreed to pay a signature bonus in Guyana.

TROTMAN ABOVE BOARD
It also pointed out that Minister Trotman prepared and submitted to the Cabinet, a Cabinet Memorandum setting out the background to the suggested course of action with the 2016 Agreement. It stated: “The Cabinet, therefore, were provided with a briefing in accordance with standard practice. The Cabinet Memorandum was discussed and the proposal was approved by the Cabinet. We conclude that the 2016 Agreement was negotiated and orderly executed in accordance with the Act and the Regulations.”

This account flies in the face of the recent Global Witness Report which suggested, although admitting it had no proof, that Trotman, who signed the Exxon deal in June 2016, may have been compromised. Regarding the visit to ExxonMobil in Houston prior to the contract signing, the report also confirmed Cabinet notes, which indicated that ExxonMobil and GGMC would provide partial funding for the costs of the visit of the Ministers to Houston.

Although the Global Witness article zeroed in on what they termed as a “lavish Exxon meeting” which possibly swayed Trotman, the independent report stated: “In our experience, it is common for international oil companies to fund, or part-fund, the visits of representatives from governments and other state organisations for legitimate business-related travel.”

While analysing that the negotiations of the 2016 Agreement took place over roughly one month and could have taken a different approach with extensive negotiations to improve the fiscal terms, the report noted that such an approach was not in the forefront of the government’s mind but the pressing concern with regards to Venezuela was present.

It also considered that a more hard-line approach with the Contractor Consortium would carry the risk that the Contractor Consortium would not have agreed to the revised terms and may have relinquished the acreage outside the discovery areas in June 2018. The report also explained that four years prior to the expiry of the 1999 Agreement, the GGMC understood that the Contractor Consortium would not be in a position to complete all the planned exploration.

Desirous that the Contractor Consortium completes exploration activities so that the full extent of the then evident resources could be identified: “The MoNR, therefore, entered into discussions with the Contractor Consortium in order to find a solution which allowed the Contractor Consortium further time to conduct exploration in the Stabroek Block.”

The Company’s report also included the history of oil exploration and discovery, pointing out that from 1975 until 2014, around 40 exploratory wells were drilled (both onshore and offshore) in the region between Guyana and Suriname with no commercial results. As a result, the 2015 Liza-1 discovery by ExxonMobil was a “turning point in the history of oil production in Guyana”. “Despite half a century of various attempts at exploration and production, this was the first success and the first concrete proof of commercial deposits of oil offshore Guyana,” the report indicated.