Dear Editor,

WHILE many Guyanese have claimed in the news that the Exxon oil contract needs to be renegotiated for one reason or another, these arguments are often not based on the reality of our situation. A letter that was published Monday, arguing that Guyana needs to renegotiate its royalty rate, also falls into this category. Nigel Hinds’ general argument is that Guyana’s 2% royalty rate is unfair and should be increased, but this is not only incorrect, but also is a very short-sighted attitude.

He states that the 2% royalty is “a sword of injustice against a small nation state that must be changed.” However, context shows that this argument is inaccurate. When Guyana signed its contract with Exxon, oil prices were low, and Guyana was an unproven frontier in the oil industry, meaning that our resource potential was completely unknown at the time.

Guyana does not have to invest anything into exploration costs. The only tool that we had at the time to attract investment from an oil company was enticing economic terms and even then, many companies passed up the opportunity because of the inherent risk of operating in a frontier territory. While we know now that our nation is blessed with large oil resources, nothing was certain when Exxon signed a contract with us. They could have spent hundreds of millions of dollars, found nothing, and Guyana would not have owed them anything. This is exactly what happened in the Falkland Islands and is a prime example of why exploring frontier areas is a risky endeavour.

We also must consider the fact that there is an unstable and hostile country to our west. Remember when Venezuela seized a seismic exploration vessel off our coast in 2013? This made Guyana an even riskier operation than most. Not only did Guyana pose all the usual risks that come with exploring a frontier area, but also companies now had to worry about coming into conflict with Maduro’s regime. Ultimately, Exxon proved to be the only company willing to bet on us at the time. The conditions of our contract were based on the enormous amount of risk that Exxon was taking by exploring here, and they certainly would not have done so if Guyana did not offer them attractive fiscal terms.

Furthermore, when all these risks are considered, the conditions of our contract have been deemed fair by experts from around the world such as Wood Mackenzie, Rystad Energy, the International Monetary Fund, and the Brookings Institute. Guyana will receive about 59 percent of total oil revenues, including the 2% royalty that Hinds attacks and 50 per cent of profits after costs, and taxes. According to Rystad’s calculations, Guyana’s terms lie perfectly in the middle of other “frontier” areas such as Israel, the Falkland Islands, and Mozambique.

Besides the fact that Exxon’s oil contract with Guyana is in reality a fair one, claiming that we should renegotiate it now is an incredibly short-sighted stance. Now is the time when we need to attract foreign investment to Guyana, and this will not happen just because we have large amounts of oil. Investors will not want to invest in Guyana if they do not have fiscal and policy certainty.

We need not look far for examples of why this is so important. Brazil and Argentina both have considerable oil and gas resources, but nationalist policies created hostile and risky investment environments, scaring away many investors and depriving both countries of much-needed foreign investment, resulting in the development of their resources being significantly delayed. There is a fine line between maximising governments’ profits and keeping as much revenue as possible within the country and stifling critical foreign investment and reducing governments’ overall income from oil and gas development.

If Guyana demands that Exxon renegotiate its contract, this could very well happen to us too. We must look at the mistakes of other countries, so that they are not repeated here in Guyana. While Guyana now has much more bargaining power in any future oil contracts, this means nothing if Guyana is deemed too much of an investment risk.

Additionally, all Guyanese must consider that if the contract is renegotiated, all our development operations will immediately stop until it is resolved. Do we really want to delay all of this at such a critical juncture? The fact is that the people of Guyana need investment in health, education, infrastructure, and industries, now. If Guyana insists on a new contract with Exxon, it could be 10 years or more until the people of Guyana see the benefits we so badly need — Brazilians and Argentinians are still waiting. If we break our contract with Exxon and in the process chase away foreign investment, nothing is guaranteed, and we could end up squandering the biggest opportunity we have ever been given.

Regards
Selwyn Paul