In what appears to be an attempt at rebranding of a political party, the Alliance For Change (AFC) has claimed that it is committed to renegotiation of the oil contract and that they are willing to assist the government in this regard. Bear in mind that it was the AFC faction of the APNU+AFC Government during their tenure (2015-2020), that renegotiated the 2016 Petroleum Agreement under questionable circumstances—that they now claim they will help the incumbent government to renegotiate.
Be that as it may, technically, the PPP/C Government has already renegotiated the unsymmetrical 2016 Production Sharing Agreement (PSA), which will apply to all new production licenses going forward. Of note, (i) the fiscal terms thereof have already been agreed upon, and (ii) the new model PSAs (deep water and shallow water) were used in the last auction, which was largely successful that attracted a number of expressions of interest.
As it currently stands, ExxonMobil Guyana (EMGL) has registered concerns only on a few of the non-fiscal terms of the new model PSAs, which the government is open to consider, prior to finalizing. But importantly, the new fiscal terms are settled, which include the following:
• Royalty rate of 10%, up from 2%,
• The profit share of 50% remains,
• Cost recovery ceiling down to 65% from 75%, thereby increasing the Government’s upfront take, and
• Corporate tax of 10%, up from 0%
Additionally, since assuming office in 2020, the incumbent government has delivered on the following commitments:
i. It moved swiftly to implement Local Content Legislation which is now generating an estimated G$200 billion annually from cost-oil to procure goods and services from Guyanese suppliers and provision of employment opportunities for Guyanese;
ii. Work began on the implementation of the gas-to-energy (GtE) project which would translate to another G$200 billion in direct and indirect benefits for the economy; and
iii. A new modern Petroleum Activities legislation was developed (already enacted into law) that repealed and replaced the outdated Petroleum law of the 1980s.
Outside of the Stabroek block, which was the only block that had moved to production before the PPP/C government assumed office in 2020, there are nine other active Petroleum Prospecting/Exploration Licenses for other blocks. Accordingly, once commercial discoveries are made in those, the new PSA/fiscal terms will apply as they move into production. In other words, the government has effectively renegotiated nine other contracts that were based on the old fiscal terms because those have not moved to production as yet unlike the Stabroek block.
Furthermore, based on all of the current discoveries and approved projects so far in the Stabroek block and those in the pipeline pending approval, the combined total size of the project development areas (PDA) is equivalent to less than 10% of the 26,806 km2 Stabroek block. Therefore, when the 2016 PSA expires in 2027, all things being equal, EMGL will have to relinquish an estimated 90%-94% of the unexplored Stabroek block, at which point the new (renegotiated) fiscal conditions/PSA shall apply.
It is worthwhile to note, too, that there were two unprecedented events that weakened the government’s position, even if it wanted to renegotiate the current Stabroek block’s PSA (2016). In this respect, the government would have been in a stronger position if by the time it assumed office following the general and regional elections (2020), EMGL had not moved to production and/or the investment decision was pending. Cognizant of the ramifications, EMGL had already made its investment decision based on the 2016 PSA, and aggressively transitioned into production in record time by December 2019, knowing full well that election was due in March 2020.
By EMGL’s own admission coupled with independent research to verify same, the timeline by which EMGL moved from discovery to first oil in just five years, was a record achievement across the global industry, aided by the deployment of advanced technologies. Historically, it took about seven-ten years to develop projects from commercial discovery to production following an investment decision.
Moreover, it would be recalled that after the successful passage of the “No-Confidence Motion” (NCM) in December 2018, the general and regional elections were constitutionally due three months thereafter; but was not held until March 2020. Further, the results of the 2020 election were not declared until five months later (August 2020) attributed to the political impasse following the election fiasco that took place.
Consequently, almost 1 ½ years later, there was a change in government following the NCM in December 2018 and the 2020 general and regional elections. Ironically, this delay was engineered by none other than the newly elected leader of the AFC, who has now found himself in a deeply conflicted and controversial situation by virtue of him being a presidential candidate of the AFC and his retainership/relationship with EMGL.
In hindsight, the indisputable fact is that whatever window may have been there to renegotiate the 2016 PSA—if the general and regional elections were held when it was constitutionally due in March 2019 instead of March 2020 following the NCM in December 2018, that window was nonetheless decimated by the current AFC leader. This outturn was achieved by way of his egregious legal challenge aimed at overturning the outcome of the NCM, which ultimately failed, but succeeded in the delay of the holding of the general and regional elections, by virtually one and a half years.