By Davina Bagot, Kaieteur News
EnergiesNet.com 09 05 2022
The lopsided oil contract, signed in 2016 by the former A Partnership for National Unity + Alliance For Change (APNU + AFC) government is riddled with flaws, as is well known. After binding Guyana to this agreement with ExxonMobil and its partners, the David Granger-led administration began pinpointing some of its mistakes, one of which they even managed to modify.
This provision was in regard to the two percent royalty the country presently receives. Chartered Accountant and Attorney-at-Law, Christopher Ram in a recent talk show, aired this week said the former Government in 2019 had managed to “renegotiate” this provision with the oil company, and was in fact successful in stamping its authority – to ensure the monies paid were not being recovered by Exxon as an operational expense.
During the public broadcast, Ram insisted, “I know for sure – I am saying this and I will stand by it – I know for sure in 2019 there was an agreement, a variation of the contract, a renegotiation of a provision of the contract by the Granger administration. Let them say that Ram is not telling the truth.”
Ram later told this newspaper that the specific modifications were made to the royalty provision, and this change would make it definitive that the two percent royalty would not be recovered by the operator.
It must be noted that in the 2016 contract, expenses are recovered by the company out of the 75 percent of oil produced that is set aside as ‘cost oil’ for which recoverable amounts are to be paid. The PSA, does not in any way spell out that royalty is not recoverable, but based on the provisions of the contract, EEPGL recovers its expenses that include the royalty paid to Guyana.
Exxon’s subsidiary, Esso Exploration and Production Guyana Limited (EEPGL), in one of its recent financial statement, had listed royalty as an expense for the company. Moreover, Vice President Bharrat Jagdeo when cornered on the matter had the following explanation to give: “now I can answer definitively because I have talked, I have spoken (sic) to GRA on the tax side so because the royalty is not cost deductible but it is GRA, based on our laws, are GRA tax deductible but they don’t come out of the cost bank so the contractor has to pay from its share, the two percent royalty to the government.”
This, however, translates to a dilemma, since the first part of the Vice President’s answer that under the Laws of Guyana, the royalty is listed as tax deductible for tax purposes. What this means is that the royalty is a tax-deductible expense for EEPGL. In other words the royalty is paid out of ExxonMobil Guyana’s expenses with one hand and scooped out back with the other as an expense for which the country must pay.
A royalty payment in the oil or gas sector is a percentage of production paid to the owner of the resource, minus production costs. Royalties are free from costs and charges. It is this observation that pushed the then Government to address the situation. This newspaper understands that the Coalition was successful in its bid in 2019, with ExxonMobil- in writing- agreeing not to recover the royalty payments. While a modified PSA was never published, the two parties were clear as to their responsibilities to this end. However, after the former Government left office in 2020, it is unclear what became of that agreement.
It is understood that the document sought to ensure that the royalty, after being paid to Guyana by the oil companies, would not be reclaimed. “That is change,” one stakeholder highlighted. “Where it was unclear whether the royalty could have been reclaimed, a document was provided assuring that it would not. Guyana was therefore able to not only get assurance, but told the oil company through that assurance, that it could not take back the royalty.”
Additionally, with the change to the 2016 Exxon contract, some stakeholders are convinced that if one provision in the contract could have been renegotiated as recent as 2019, then the door has been opened to renegotiate other terms in the document.
On the other hand, they pointed out that the decision lies with the current Government and their willingness to pull Exxon back to the table as highlighted in their election campaign promises.
The issue of royalty recovery came to the fore and became a matter of concern when Kaieteur News reporters, during their coverage of the Trinidad and Tobago Energy Conference in May, found out that for 60 years, the oil operator there was giving the twin nation royalty payments on one hand and recovering it on the other. This unfortunate situation, it was explained, befell the CARICOM state after it failed to detail explicitly what costs are recoverable by the oil company in the sharing agreement.
Research on Exxon’s treatment of nations where finances are concerned deeply underscores the need for authorities here to be extremely cautious. In 2010, the Oil & Gas Journal said that ExxonMobil Corp. had agreed to pay a US$32.2 million federal fine to resolve a whistleblower’s claim that its affiliates knowingly underpaid natural gas royalties on federal and American Indian leases. The US Department of Justice had said the claim arose from allegations that Mobil Natural Gas Inc., Mobil Exploration & Producing US Inc., and their affiliates systematically underreported the value of gas taken from the leases from March 1, 1998, to November 30, 1999, and consequently paid less in royalties to the federal government and various Indian tribes.
At the moment, Guyana is conducting audits of Exxon’s post 2017 bills which total US$9B. The consortium, which is made up of local and foreign auditors, is reportedly expected to complete same sometime this month. It is expected that the audit team should keep an eye out to determine whether the royalty was in fact, not being recovered or being underpaid by Exxon and partners.
kaieteurnews.com 09 04 2022