THE Guyana-ExxonMobil 2016 oil contract has been the source of much controversy, with continuous calls for renegotiation in some quarters without a clear analysis of the situation.
These calls, though emotionally appealing, are blind to the complex realities of international business and the potential consequences for Guyana’s economic future.
Recent statements by Member of Parliament Sanjeev Datadin should help lower the temperature on the call for a breach of sanctity of contract in the global business environment. While the 2016 agreement is certainly lopsided in favour of ExxonMobil, the notion that Guyana can unilaterally jettison a legally-binding contract on grounds of unfairness is not only naive but potentially disastrous for the country’s reputation as an investment destination. The stabilisation clause in the contract requires Guyana to compensate ExxonMobil for any financial losses resulting from renegotiation, making unilateral
changes to the agreement financially untenable. This often-overlooked clause underlines the complexity of the situation, thus requiring a nuanced approach. The calls for renegotiation do not take into account the benefits already derived from the investment by Guyana at the hands of ExxonMobil. The rapid pace of development has brought significant economic growth, with more than US$4.2 billion paid into the Guyana Natural Resource Fund since production started in 2019. The Local Content Act put in place by this administration has already retained billions of dollars within Guyana through local
businesses. It is important to note that the long-term value of oil is not certain, as the world is moving towards renewable energy. In this context, it makes a lot of sense that Guyana would want to extract its oil resources as quickly as possible to reap the most economic benefits. It helps no one if the oil is left in the ground when it can yield meagre returns someday. The current administration has shown that more could be gotten from the existing contract without resorting to renegotiation. The gas-to-energy project alone will save US$250 million per
year, and US$700 million comes in due to the local content law. These initiatives testify to a prudent way of maximising benefit within the four corners of the existing contract. While the circumstances surrounding the negotiation of the 2016 contract are shady, including the writing of Guyana’s
negotiating position by ExxonMobil, the solution does not involve breach of contract but learning from these mistakes. First, the government has held firm to the position that it would not weaken new Production Sharing Agreements to suit ExxonMobil’s liking.
While the zeal to get a better deal for Guyana is understandable, the calls for renegotiation of the 2016 contract are misguided and potentially injurious.
Guyana needs to respect the sanctity of contracts if it is to retain credibility on the international scene for the attraction of foreign investment necessary for its development. The emphasis needs to be how best to maximise the benefits from the current agreement, and make sure that future agreements are negotiated with the interest of the country at heart.