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Letter: A No Deal is Better than a Bad Deal: The Oil Contract Negotiation Between Guyana and ExxonMobil

In righteous indignation, as a concerned citizen, the deal struck between Guyana and Exxon Mobil, confirms the schizophrenic mindset of the APNU/AFC government.

Negotiating against Exxon Mobil, one of the fortune 500 companies in the world with access to some of the best negotiators and experts in oil and gas, any sane government would have reached out to experts of matching caliber to secure, if possible, the best deal for its people. Unfortunately, our government took a sling-shot to a gunfight: the zenith narrow-mindedness and oblivious composition of the APNU/AFC government allowed Exxon Mobil to ink one of the most lucrative oil deal. This unmatched ignorance and incompetence parade by the government has cost the country billions in potential foreign revenue, and the most promising opportunity to lift majority of the people of this nation out of poverty.

The low cost environment on which the Stabroek Block sits, places Guyana next to Mexico and Brazil as some of the most lucrative offshore areas for oil and gas investment. However, our incompetent and ill-informed government failed to capitalize on this trump card, allowing them to receive, presumably the worst deal in the oil and gas world. For example, Brazil, with similar prospect draw down a whooping US$701 billion signature bonus with ExxonMobil for a block in the Campos Basin. Guyana, on the other hand, unfortunately received a miniscule US$18 million, which, in the books of the APNU/AFC government, is good.

The Bad Deal
Negotiating the oil contract with Guyana was Negotiation 101 for the representatives of ExxonMobil’s. Trotman and his consortia of blind mouses, clearly buried in oblivion, had no clue of the various negotiation tactics levied against them: mirroring, getting to “yes”, follow-up with “how” etc. ExxonMobil, like any private company did an excellent job for its shareholders, by carry-off more than what they bargained for.

The contract signed between ExxonMobil and Guyana is a tight sealed agreement. It clearly insulates and represents the interest of the oil giant down to every detail, meticulously. Article 11 of the contract, Cost Recovery and Production Sharing, allows ExxonMobil to use 75% of total production to cover operation cost, while, the remaining 25%, will be divided equally between the government and ExxonMobil as production profit. Now, according to Article 14, the government “shall be responsible for all costs and risks associated with the Government’s Lifting Entitlement from and after the deliver point”. Essentially, what this is telling us is that profits will be in the form of crude oil, of which the responsibility lies with government to uplift and transport. However, if the government wishes for its share to be sold by ExxonMobil, the company reserves the right to institute charges “normally borne by a seller” such as marketing fees, transportation etc. Thus, it is evident that there is lack of reciprocity on part of ExxonMobil towards Guyana. Essentially, ExxonMobil has restricted Guyana to benefit from its access to concessions and other amenities enjoyed with other countries and industries.

Twilight of the Oil Age
Oil is no longer perceived as the “black gold”. The windfall is relatively short due the lackluster price of oil. Oil producing countries than once cashed in on the oil bonanza during the oil boom, have all, if not majority, deflated to pre-oil boom era. Take for example, Ecuador. The economic structure of Ecuador is very much similar to that of Guyana. The economy is based on the export of agricultural products, gold and oil. Yet, according to the World Bank, GDP per Capita as of 2017 stood at US$5,968. This is approximately US$1,900 more than that of Guyana. Ghana, on the other hand, a country that is diverse and rich in resource has a GDP per Capita of US$1,513. Venezuela, who has the worlds largest reserve in excess of 300 billion barrels of oil or 9,900% more that Guyana’s is in economic turmoil. Oil, contrary to conventional dogma, is more of a natural resource curse than economic windfall. Guyana who has, prior to 2016, one of the most prudent and robust macroeconomic structure in the Caribbean, with an average growth rate of 4.1%, is now in reverse. The country is faced with severe threat of foreign exchange shortages, and unsustainable debt. The government, which proves its incompetence on countless occasions is undermining and unraveling both social and economic gains to satisfy their political agenda.

On the international horizon, big players in the oil and gas sector are diversifying their investment baskets. Even though there is a boom in investment in low-cost oil exploration environment, it is highly probably that it would be short-lived given shrinking long-term demand: Firms, such as Dutch Shell, near Aberdeen has decommissioned part of its pipelines and rigs installed; Statoil, a Norwegian oil company, in early 2016, built the world’s largest floating wind farm, 15 miles off the coast of Aberdeen; and in Saudi Arabia, the country in gradually gravitating away from its dependence on oil by slowly privatizing part of its state own Saudi Aramco. Moreover, large consumer such as China and India are ratcheting-up investment in renewable energy.

Given the above, Guyana will never see the shadow of an oil refinery on its soil constructed by ExxonMobil. So where does that left us? Our mere 2% royalty, if the oil market is kind to us.

Way Forward for Guyana
Guyana should take a page out of Venezuela’s failed oil regime and focused its attention strengthening its traditional sectors, while transforming its economic landscape through infrastructural development. First, sugar needs to stay for the mere fact that its too big to fail. The social and economic corollaries are immense and pivotal for improved wellbeing and standard of living. Another major and critical project that need to materialize urgently is the Amaila’s Hydro, and the Linden/Lethem roadway. With reduced cost of electricity, higher foreign exchange through reduced import bill, and increased access to the Brazilian market, Guyana will be strategically positioned as the gate way of the Caribbean for both Brazil, and America Latina as a whole. To offset the influx of ships, the deep water harbor will become ideal. With a boom in the transportation sector, and favorable investment environment, local producers will experience an increase in demand.

As the central hub of commerce, Guyana will become increasingly appealing for foreign investors. Our tax system will have to readjust, providing protection for our local producers, while enticing foreign investors. Another sector that warrants significant emphasis for its immense potential is health care. The speciality hospital will target both patients from both the Caribbean and neighboring Brazil.
Mateo Fredericks

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