Oil contract with Exxon evolving

Oil and Gas Adviser Matthew Wilks and Director of the Department of Energy, Dr.Mark Bynoe Photo by Delano Williams

…gov’t seeks increases in value proposition
…no plans to renegotiate pact

IN rating the 2016 Petroleum Sharing Agreement (PSA) signed with Esso Exploration and Production Guyana Limited partner of U.S. oil giant ExxonMobil, Director of the Department of Energy, Dr. Mark Bynoe said while the agreement may not be excellent, it is not very poor.

“Contracts are (placed) on a spectrum and they range from excellent to very poor. What we can say is that the current PSA may not be excellent but it is not very poor either,” Dr. Bynoe told reporters during a press conference at the Ministry of the Presidency on Thursday.

At the time, he was responding to the question of whether government would renegotiate the 2016 agreement in light of continued criticisms from both civil society and the political opposition over several aspects of the agreement, including the percentage of royalty.
Dr. Bynoe said that a review of the PSA with ExxonMobil has to be contextualized in terms of the volume of the investment, the risks taken, and the period in which the investment occurred.

“As a government we have already expressed the need to honour the sanctity of the contract and we will continue to do that, but contracts do evolve,” he emphasised while noting that government will continue to engage ExxonMobil to ensure that the value proposition to Guyana increases.

Weighing in on the issue, the Energy Department’s Oil and Gas Adviser Matthew Wilks said the renegotiation of contracts in the oil industry must be done on a mutual basis, noting that from the initial stage they are mutually agreed upon. “The success of Guyana is being based on Guyanese approach to contractual law which is sanctity to contract, generally, whatever contract there may be whether it is in the oil sector or outside of the oil sector,” Wilks told reporters.

Cautioning that investors are looking on, he said any unilateral decision with respect to a contract can be a deterring factor. “If you start unilaterally trying to change contracts, you frighten investors, and you only have to look at other jurisdictions where this has occurred for one reason or the other…and you would see investors stop investing,” the Oil and Gas Adviser said.

Like Dr. Bynoe, he said when analysing a contract, consideration must be given to the time in which it signed, the level of investment, and the risk taken.
“When you are seeking or you look up opportunities to change the terms of the contract, you could only do that when the circumstance arises, and when it is mutual; you cannot force it,” he said.

While the government has not agreed to renegotiate the contract with ExxonMobil, the Department of Energy has initiated the process of designing a new model contract that will be used for future PSAs. Wilks said like any contract the model contracts are developed, based on the existing environment of a given sector.

“So a model contract that is used to attract investors from the onset of the petroleum industry is very, very different from a model contract as the industry matures, and very, very different from a mature industry. So if you look around the world, you will see that model contracts evolve all the time, and all that is happening here, this is the right time to evolve the contract,” he told reporters.

In the case of the existing PSAs, Wilks said they have been very successful in attracting investments. Contracts, he emphasised, must be able to attract investors. “You can have the most advantageous contract for the government doesn’t mean that people would invest, and in fact in many locations, the experience is, is that you have to balance the contract. It is no use having the most aggressive contract in the world if no one invests,” he emphasised.

He posited that in other parts of the world, oil discoveries have been made, however, due to less than favourable investment climate, the resources of many countries have not been developed. “There are many locations around the world where oil is being discovered but it is not even on stream, and we have a very, very fast cycle time here, basically six years from discovery to first oil to first revenue.

“Uganda discovered oil in 2006 on shore, which is a much easier proposition than we are talking here, yet the oil isn’t even flowing today,” the Oil and Gas adviser pointed out.

Legal framework
In addition to designing a new model PSA, the Department of Energy is reviewing the current legal and regulatory framework governing the Petroleum Sector, including the 1986 Petroleum Act.

According to the Director of the Department of Energy, based on the review, proposals for amendment and possible replacement of some existing legislation will be made. “We are therefore cognisant of the fact of hiring of external legal assistance as one pillar to allow us to build a framework that is both robust and will ensure that the maximum net returns will be down to Guyana and Guyanese,” Dr. Bynoe said.

According to him, next Tuesday, first presentation on the current legislative framework and proposed changes will be presented to the department. It is anticipated that the process would be completed before the end of 2018.