Of oil prices and oil contracts

In the midst of new concerns raised about the contract it signed with the three-party consortium to develop the oil reserves in the Stabroek Block, the Department of Energy’s Head – the environmentalist Dr Mark Bynoe – reiterated that Guyana will be shipping its first million-barrel share of “2% royalty and 12.5% profit oil” later this month. This means that Exxon, Hess and CNOOC, would have already lifted and shipped their 85.5% shares. Guyana’s oil will be sold to a division of Royal Dutch Shell, which won a controversial bid for the rights to market Guyana’s first three cargoes of crude oil.
The Energy Department’s hand-selected companies that competed for the rights were operators Exxon, Hess and CNOOC along with oil majors BP, Chevron, Total and Eni. The Department did not invite the more aggressive independent oil sellers that dominate the market. The Department announced that “The sale has been premised on a Dated Brent price basis which reflects the tradable, spot market value of crude oil”. It promised that “pricing details” will be publicly disclosed in the future.
The PNC-led Government had been pushing for Guyana’s “first oil” to be shipped by this month ever since caretaker President David Granger announced that the long-delayed elections would be held on March 2. It clearly wanted to use the occasion as a campaigning ploy to demonstrate that Guyana was actually receiving “oil money” to fund all the promises they have been making on the campaign trail. However, it would seem they were too smart for their own good since, in only the last week, the benchmark Brent spot price has dropped US$4 per barrel from US$60 to US$56 – a 6.6% decline which will continue primarily due to decreased demand from China and the airline industry because of the coronavirus pandemic. Even if prices slide to US$54 by the time the shipment is made, Guyana would be losing US$6 million or GY$1.2 billion.
On another front, it was announced that the British NGO “Global Witness” has written to the local Exxon subsidiary to claim that the terms of the contract the Government of Guyana negotiated with the consortium of International Oil Companies (IOC) for developing the Stabroek Block containing 7.9 billion barrels of oil is not “fair”. Rather than the 52% share of profit oil Guyana receives, it should be getting 69%. Based on this latter metric, Global Witness calculated that at a price of US$65 (sic) per barrel, Guyana would be “losing” some US$55 billion over the 40 years it would take to deplete the field. Global Witness insists that this contract is “exploitative and unjustifiably bad” and “Exxon should renegotiate the Stabroek licence so that Guyana obtains a fair deal”.
But what Global Witness has omitted is very revealing: the contract was negotiated by a sovereign country named Guyana run by its APNU/AFC coalition Government – and represented by its Minister of Natural Resources, Raphael Trotman. Guyana has had dealings with foreign multinationals in the extractive mining sectors of bauxite and gold for decades and should have had the institutional memory to at least accept that it needed to hire experts in the oil sector to bargain effectively. Yet, Global Witness, adopting their paternalistic first-world assumptions of the “natives” being incapable of “negotiating” with the modern corporations uttered not a word on the failure of Minister Trotman to negotiate a better deal for Guyana. Not so incidentally, the PNC and Trotman have always touted the vaunted negotiating ability of Trotman based on his “first world” education at Tufts University. After the contract, President Granger praised his “sterling contribution” to developing the oil sector.
On another related front, there are claims that a “Bridge Deed” which was created by Trotman to have the original Licence and Petroleum Agreement with the operators extended so as to create a new Production Sharing Agreement (PSA), which was done outside the ambit of the law.
It is clear that Minister Trotman’s actions on oil should be subjected to legal examination.