While the 1999 oil agreement between ExxonMobil and Guyana contained a regime of fees that the company had to pay, the renegotiated agreement has thrown away many of these revenue streams.
Christopher Ram
This observation was made by Chartered Accountant Christopher Ram, who, in his recent writings, noted that in the place of these fees, the lump sum payment of US$1 million per year has been added to the agreement.
The old agreement had included different rental fees for the initial period of the company’s prospecting or production licence. In similar vein, it would pay for the first and second renewal period of the licence.
“Article 10 has been amended to replace a number of annual charges with a US$1 million per year for annual rental charge,” Ram related. “This figure may sound high, but it works out at less than 30 US cents per annum per hectare…what a bargain!”
According to the Chartered Accountant, there is an additional provision where payments under Article 10 have to be paid directly into bank accounts held and controlled by the Government of Guyana.
“Contractor shall verify such bank accounts and the Minister agrees to cooperate, assist and provide Contractor any information it requires to conduct such verification. In other words, (Minister of Natural Resources Raphael) Trotman was central to this bank account,” Ram stated.
Missed opportunities
When the oil contract was released, analysts commented on the opportunities Guyana had missed to maximise on its oil – a non-renewable natural resource. One example was that despite provisions in Guyana’s law, Government missed an opportunity to acquire a stake in Exxon’s venture.
The Petroleum Exploration and Production Act, Chapter 65:10 of Guyana, provides for the Government to work out terms and conditions with any oil company to acquire an interest in its venture in local waters.
Section 22 (2) of the Act states, “There may be included in a petroleum prospecting licence provision with respect to the exercise by the State, or any agency thereof identified in the licence, of an option to acquire on stipulated terms, or on terms to be agreed, an interest in any venture for the production of petroleum which may be carried on in any block or blocks to which the licence relates.”
Section 36 (1, VI) reiterates that a petroleum production licence will not be granted unless the exercise of the State’s option is completed to satisfaction. Exxon was granted a renegotiated agreement in 2016 and its production licence for the Liza project in June of last year, but the provision in the law was never applied. Nor is it unusual for a country to get directly involved in oil production.
While Guyana did not get this law enforced, ExxonMobil and its partners in the Stabroek block got exempted from paying Corporation, Excise or Value Added Tax on earnings from petroleum.
Article 15.4 of the renegotiated contract also provides for the Government itself to pay the company’s income tax. To facilitate this, the oil company has to submit tax returns to the Government. That’s not all, Article 32 stipulates that Government cannot modify the contract or increase any fiscal obligation the company has.
This, therefore, puts a cap on the taxes, royalties, duties, fees or charges outlined in the contract. Government also has to compensate the operator if a change to existing laws causes loss of revenue for the company.
According to Article 32.3, “If at any time after the signing of this agreement there is a change in the laws of Guyana… and such a change has a materially adverse effect on the economic benefits, including those resulting from the fiscal regime provided by this agreement… the Government shall promptly take any and all affirmative actions to restore the lost or impaired economic benefits to contractor, so that contractor receives the same economic benefit under the agreement that it would have received prior to the change in law or its interpretation, application or interpretation.”
The contract goes on to say “the foregoing obligation shall include the obligation to resolve promptly by whatever means may be necessary any conflict or anomaly between this agreement and any such new or amended legislation, including by way of exemption, legislation, decree and/or authoritative acts.”
