Guyana President Dr. Mohamed Irfaan Ali said Friday that discourse in Guyana about the Stabroek Block Production Sharing Agreement (PSA), particularly the call for renegotiation, has become one of obsession and paranoia.
“Don’t ask me the question a hundred times,” the Head-of-State asserted during an event at Houston, on the outskirts of Georgetown, Guyana.
He said the controversial contract, signed in 2016, is an inheritance of his government, from the administration that was ousted at the culmination of the 2020 electoral process. And while the government thinks the contract was not the best, Ali said they have a responsibility to take inherited agreements and make do.
“A country does not turn off when one government comes in and another government comes out,” he explained. “We understand that we’re obligated to act in good faith in honouring it.”
The question of the contract’s stability is not just about headlines or capturing hearts, the President said, but about a country’s development. He called on companies operating in the oil sector to start speaking out too. He asked what would have happened to their investments if the government decided to dishonour the sanctity of the Stabroek Block agreement.
“You guys have to start speaking. This is not a matter for the government. This is a national matter,” Ali said.
The government, in rebuffing calls for renegotiation, has impressed upon the need to protect contract stability to preserve Guyana’s image as a country respectful of investors.
Ali said neighbours have wrestled with the consequences of dishonouring the sanctity of contracts. Venezuela’s experience with upending contracts and nationalising assets resulted in billions of dollars in claims being made against it in lawsuits from ConocoPhillips and ExxonMobil.
Ali said if Guyana were to go that route, it would be facing off against an oil major that will have access to a superior portfolio of attorneys – which, as a result of the PSA terms, Guyana would be paying for.
“We looked at it, we analysed it, we weighed the options, and we took a series of actions. So, we have chosen instead to take the prudent path,” he said.
Authorities say they can maximise revenue from the contract through good management, with mechanisms like local content. They plan to seek a greater share of the revenues from oil production from future deals governing other blocks. A new model production sharing agreement (PSA) will be published in this quarter which, among other things, doubles the share upfront to the government.
The Ali administration has repeatedly rebuffed calls to renegotiate Exxon’s Stabroek Block contract. Some locals are disgruntled with the fiscal terms which split the profits 50/50 between government and contractor, after investments are recovered up to a ceiling of 75% of produced barrels for a given period. The companies also pay Guyana royalties of 2% of the value of oil produced and sold. This works out to Guyana getting approximately 14.5% of the value of the oil produced. It is expected that after costs are recovered, Guyana’s share will increase substantially. But because projects are not ringfenced, every new project Exxon pursues has the effect of prolonging the cost recovery period. Exxon plans to have six projects operating simultaneously in the block by 2027/2028.
The revenue stream to Guyana has already given it an opportunity to embark on national development at an unprecedented scale and will increase significantly. But critics say Guyana still deserves a bigger share of the pie upfront.