It is not uncommon for countries with little or no proven oil reserves to offer prospective investors favourable fiscal terms in an effort to kick-start their petroleum ambitions says the International Monetary Fund (IMF), Norway-based industry analyst, Rystad Energy and UK-based Wood Mackenzie.
Debate has been ongoing in Guyana over the deal the country has made with ExxonMobil with heavy scrutiny being placed on the fiscal terms which some argue are not favorable enough to the country and should be renegotiated.
While a report prepared by the International Monetary Fund (IMF) calls for a revision of the tax regime and PSA terms to ensure future agreements are improved, the IMF also said the terms outlined in the ExxonMobil PSA were not uncommon for frontier countries. “As this is not unusual in a country only starting to develop oil, the immediate priority should be to strengthen the capacity to effectively implement the contractually agreed fiscal regimes. For new investments, focus should be on improving the general fiscal regime and any future contracts reflecting the now lower exploration risk,” the IMF said in a November 2017 report, commissioned by the Guyana Government.
Rystad Energy and Wood Mackenzie, in separate studies, concluded that the average government take as outlined in the ExxonMobil Guyana PSA, is in line with a number of frontier countries around the world.
When the deal was signed between Guyana and ExxonMobil back in 1999, no discoveries were yet made and a number of attempts by other companies in the offshore basin had either come up dry or were frustrated by Venezuela over its claims to territory delineated as belonging to Guyana over a hundred years ago. This matter is currently engaging the attention of the International Court of Justice, at Guyana’s bidding.
Analysts and observers in the industry have said that the ExxonMobil Guyana PSA must be viewed in light of these particular conditions, and while there is always room for improvement, to call for a complete renegotiation, with first oil set for 2020 based on the current PSA terms, sends a bad signal to investors worldwide.
Officials from both the Government and the oil company have also been stressing the need to respect the sanctity of contract.
Speaking to members of the media at the opening of a Private Sector Commission Oil & Gas Seminar in March, ExxonMobil Guyana’s Senior Director, Public and Government Affairs, Kimberly Brasington, said in any industry the sanctity of a contract is very important both for companies and the country. “We believe firmly in that principle that there is real value in the sanctity of a contract and there are a lot of eyes on Guyana right now watching to see how this plays out and is this a stable environment in which to do business.”
The country’s Minister of Business, speaking at the same event, said, “You don’t unilaterally amend a contract after the other party has invested hundreds of millions of dollars under the terms and conditions of that contract. Governments have to behave responsibly when it comes to business dealings, especially if we want to do more business in the same industry.”
To date, ExxonMobil in partnership with Hess and CNOOC Nexen has discovered more than 3.2 billion barrels of oil off the Guyana coast. Multiple developments are being planned that would see Guyana producing more than 500,000 barrels of oil per day by the late 2020s.