Every Man, Woman and Child in Guyana Must Become Oil-Minded – Part 81 – January 3, 2020
Introduction
This column should have continued my take on Local Content. I will defer this to a later piece so that I do not miss the very focus on this series: the Road to First Oil. Readers will recall that this series which began in June 2017 was titled the Road to First Oil. That day arrived with a statement by ExxonMobil on December 20, 2019 that oil production had started from the Liza field offshore Guyana less than five years after the first find of hydrocarbons. In what was a clear sign that Guyana’s national petroleum agenda is driven by the American oil giant, Guyana’s President David Granger made a similar announcement only minutes before that by ExxonMobil which incidentally operates through a shell company incorporated in The Bahamas.
But even before the announcement, there was again obfuscation and confusion concerning the sale of Guyana’s share of the soon-to-be-produced oil of which notification came not from the Government of Guyana but from Bloomberg, an American news agency. In recalling the falsehoods of then Oil Minister Raphael Trotman about the signing of the 2016 Petroleum Agreement by Raphael Trotman and the concealment of the Signing Bonus by the Ministry of Finance, one fails to recognise any significant improvement in competence, accountability and transparency since control and management of the petroleum sector was removed from Trotman and handed to Dr. Mark Bynoe who seems to be running a one-man show. At least one thing can be said for Trotman – he is a member of Cabinet, Bynoe is not.
Sole control
It is simply unbelievable that any country, any leader, or any Government would give sole control of such a critical sector to a single individual with no relevant expertise or experience and who does not even sit in Cabinet. While the sale of petroleum by Dr. Bynoe aroused public consternation, the broader issues of legality, violation of the Petroleum Agreement and of governance do not appear to have troubled too many persons. Admittedly, one attorney-at-law was quoted in the media as taking the matter to court but that never seemed to have happened. Subsequently, Dr. Bynoe caused to be issued on December 15, 2019 a statement in which the Department of Energy stated, that “the process underway in the coming week is not for marketing services. It is for a direct sale of the first 3 lifts assigned to Guyana.”
This statement seems to have been a response to the criticism that the sale constituted procurement and therefore violated the Procurement Act. For the record, I did not think it was a procurement issue and I agree with the Department of Energy (DoE) that it was a sale of Guyana’s share of the First Oil. What I do not agree with is that Guyana is somehow assigned any lifts – no Sir, we are entitled to such lifts. Yet, the outline of the arrangement as reported by Bloomberg is that bidders for 3 million barrels of Liza Blend crude, being Guyana’s accumulated share of royalty and profit oil of 14.25% of production, in which the buyer is required to take the unusual role of handling “all operating and back office responsibilities” related to exporting the crude”. Adding to the unorthodoxy is that bidders were required to make face-to-face presentations of their bids.
Odd arrangement
It appears from information gleaned from separate sources that Exxon’s subsidiary and its two partners, Hess and CNOOC/Nexen will take the first three shipments while Guyana will receive the fourth shipment some time in February. But there is something odd about this arrangement. Profit oil is calculated after the deduction of recoverable costs and subject to a 75% restriction. This means that while the restriction on recoverable cost is in place – which will probably extend over a couple of years – Guyana will get the same amount of profit oil (12.5%) as the three contractors combined. Put another way, the three contractors will be entitled to receive their share of the remaining 12.5% proportionate to their holding – Esso 5.63% of profit oil, Hess 3.75% and CNOOC 3.13%.
What the arrangement with the oil companies suggests is that those companies will not only be receiving their modest share of profit oil but also a good chunk of their investment in a manner not contemplated by the Agreement. Bynoe may not recognise it but this arrangement will create accounting and auditing headaches if not nightmares.
For Guyana to have three shipments, it means that the cycle of Esso, Hess, CNOOC and Guyana will be repeated but since production is not shared equally, (Esso has a 45% stake, Hess 30% and CNOOC 25%) it is not clear how and when Guyana will become entitled to three million barrels given its entitlement to 50% of profit oil after a 2% royalty.
Violation
I am convinced however that what the DoE described as an interim arrangement is a clear violation of the Petroleum Agreement. The Agreement expressly provides for the oil companies to bear and pay all Contract Costs incurred in carrying out Petroleum Operations and for them to recover Contract Costs as Recoverable Contract Costs only from Cost Oil. It further provides that such costs are to be recovered from the value of the volume of Crude Oil produced and sold from the Contract Area.
Dr. Bynoe has recruited another foreign consultant to tell him at a cost of millions of dollars who are the international oil players. But Bynoe and his advisers have failed to appreciate that the Agreement is based on monthly production. See Article 11.3 of the Agreement. Dr. Bynoe is being led by Exxon to operate outside of the Agreement for which he has no authority. In the process, he is exposing Guyana to price and exchange rate fluctuation by deferring its right to take up and dispose of its share of oil.
Bynoe is playing around not only with the Agreement but with Guyana’s entitlement under it. The tragedy of the Granger Administration’s mismanagement of the oil sector just seems to get worse.
By Chris Ram
Article originally published at: https://www.chrisram.net/?p=2143
