Every Man, Woman and Child in Guyana Must Become Oil-Minded – Part 77 – November 15, 2019
Today’s column highlights a few issues raised by Mr. Raphael Trotman, then Minister of Natural Resources who appeared before the Natural Resources Committee of the National Assembly on May 18, 2018. In his presentation, Trotman misled the Committee on the origins of the 2016 Agreement, revealed that the signing bonus was not really a signing bonus, lied about the presence of natural gas in the 1999 Agreement, misrepresented the nature of the Stabilisation Clause and grossly exaggerated the share of revenue that will flow to the Government from petroleum. In summary, Trotman was either clueless or dishonest but whatever it is, he and the Government have cost the country dearly.
The origin of the 2016 Agreement
According to Mr. Trotman, the Granger Administration took a decision in 2015 to update the agreement with ExxonMobil, describing the occasion not as a re-negotiation but as an “update of an agreement”, something of dubious authority and alien to the Petroleum Exploration and Production Act. Apparently Trotman in the give-away of the century was unaware of the changed circumstances between 1999 and 2016 – the difference between pre- and post-discovery. But what moves the matter from incompetence to dishonesty was that when Trotman appeared before the Committee in 2018, he had already been in receipt of an April 2016 Memo relating a confrontation between ExxonMobil and the Head of the Petroleum Unit of the GGMC in which the oil giant insisted that “For Esso to start spending, the replacement petroleum licence and agreement is needed”.
In other words, the Government was forced into a decision by Exxon who recognised its tenuous position with the 1999 Agreement coming to an end.
The signing bonus
The Report quotes Trotman as saying that Guyana “received the sum of US$18 million, which was termed as a signature bonus. But for all intent and purposes, US$15 million of that has always been earmarked as the legal fees to be paid for our legal challenge in court, and US$3 million was set aside for capacity building for the country, in the years 2017 through to 2020.”
Trotman told the Committee that the persons rendering advice to the APNU+AFC Government in 2016 were the same persons who had given advice to the PPP/C Government in 1999. Perhaps that advice extended to legal services as well but that question was not asked of Mr. Trotman by any Committee member. The so-called signing bonus then, based on Trotman’s testimony was not really revenue but to protect the massive oil blocks granted to Esso. To use Trotman’s words, “ExxonMobil, after some discussions, agreed to give Guyana some support …”
We have since learnt that part of the US$15 million is already being drawn down and it would be interesting to know for whose benefit. Could it possibly for some of the same persons who might have been paid in 1999?
The Stabilisation Clause
This is in fact a separate Article in the Agreement which Trotman traced to the Petroleum Agreement with Anadarko Petroleum Corporation which was signed in 2012. Trotman deserves credit for his Trumpian habit of making up credible stories with a straight face. In fact, the Article is a replica of Article 32 – Stability of Agreement contained in the 2012 Model Petroleum Agreement published when Robert Persaud was the Minister! Indeed, a Stability Article appears in the 1999 Agreement.
To confuse the Committee even further, Trotman linked the Stability Article to the Beal Deal and with his straight face telling the Committee that “(a)fter the collapse of the Beal Deal, because of strong opposition from Bolivarian Republic of Venezuela, companies want and continue to want to know that they have a regime that is almost iron-clad, that Government would not turn, put its tail between its legs and run away whenever opposition comes, nationally and internationally.”
If there is any evidence that Trotman was never fit to hold the portfolio, incapable of negotiating a Petroleum Agreement or even understanding what he had signed up Guyana to, it is his ignorance of the origin and the content of the Stability Article. It has to do with exempting the oil companies from any legislation passed by any Government having an adverse impact on Exxon.
Natural gas
Mr. Trotman boldly asserted to the Committee that “We have also included the clauses for the use of natural gas. The 1999 Agreement had nothing about natural gas.” I do not know whether to laugh or to weep for Mr. Trotman but how could he not know that the 1999 Agreement had as Article 12 – Associated and Non – Associated Gas, the same title as the 2016 Agreement and that the two Agreements bear striking similarities?
Guyana’s earnings
Demonstrating the mathematical wizardry which underpinned the APNU+AFC’s definition of a majority, Trotman delved into some hyperbolic calculations directing the members of the Committee who have calculators to follow his maths. Using a base of 3.2 billion barrels of oil he asked them to multiply that number by 50% and then declaring that “it would be in the realms of US$300 billion and half of that is already coming into Guyana. We are already going to be wealthy.”
Here again, Trotman is displaying further evidence of his limitations which operate against the interests of the country. It is unclear from his convoluted maths whether he is assuming a price of US$200 per barrel or US$100 per barrel, the first of which is crazy and the second extremely optimistic. He completely ignores Cost Oil which includes annual operating, financial and other onshore costs as well as pre-contract and pre-production costs. Conservatively, for the first three to five years all Guyana might receive is 14.25% of gross revenues including royalties from the Esso contract.
It is true that Guyana will receive income from employment and withholding taxes that are not insubstantial. But against this has to be weighed the cost of regulating the sector by the Customs and Trade Administration, the Guyana Revenue Authority, financing the Department of Energy and the Environmental Protection Agency all of which can add up to several billion dollars annually. Trotman is no longer the Petroleum Minister and that is a good thing. Hopefully Dr. Mark Bynoe is better at maths and with facts.
By Chris Ram
Article originally published at: https://www.chrisram.net/?p=2135
