That troublesome confidentiality provision in the law and the Petroleum Agreement has once more attracted attention with the announcement that Guyana is now officially the 53rd candidate country of the Extractive Industries Transparency Initiative (EITI). Officially, EITI is aimed at openness around the governance of natural resources and one would have expected that the admission of Guyana was as a result of commitments made by the country concerning such openness. It is difficult to reconcile openness with the refusal to provide the country, the National Assembly or the individual Coalition Partners with any information on the Petroleum Agreement signed by Minister Trotman in August 2016.
Readers of this column are aware of my strong conviction that there was absolutely no reason for a new Petroleum Agreement with Esso and its joint venture partners. The Agreement lasts the entire duration of the Prospecting Licence and the Production Licence so the question or the mystery is the reason for a new Agreement. A source has indicated to me that the reason is not as mysterious as it may seem. Indeed, the explanation offered to me is very simple. The Government of Guyana used the excuse of a new licence to extract a signature bonus, a payment made by a contractor on the signing of an Agreement to take up any given number of blocks. The figure I have been told is twenty million United States Dollars. Continue reading Every Man, Woman and Child in Guyana Must Become Oil-Minded (Part 21)
Column 19 last week summarised how petroleum produced is shared between the Contractor and Guyana represented by the Minister. Now, if the parties were to take their respective shares and act independently, selling their share of the crude, or refining and selling it as they wished, there would be no need for the Agreement to include any provision or rules concerning valuation. In Guyanese parlance, that would be their business. In other words, Guyana can do as it wishes with its share while the Contractor will be able to do likewise. But life is not so simple, nor are petroleum operations.
Guyana’s share of the production, at least in relation to the Liza Block, is a minimum of 14.5% of the number of barrels of oil produced (2% for royalties and 12.5% as minimum profit share). In column 19, I had expressed the view that for practical purposes, Guyana will not physically take up its share and will more than likely request ExxonMobil to refine and dispose of its uptake. I admit that I am discounting, at some risk, the possibility that Guyana may choose to sell its share at the wellhead to one of the other joint venture partners in the Liza Block.
Recall that the shares in the Joint Venture are held 45% Esso Exploration, 30% Hess and 25% CNOOCNexen. It may be far simpler, tidier and will pose less accounting and audit issues, and possibly disputes, if Guyana decides to sell its share to any of the partners at the wellhead. The more curious will immediately ask from whose share does the 14.5% to Guyana come. The answer is that it comes out of the gross and the JV partners will take their respective shares of the net. Continue reading Every Man, Woman and Child in Guyana Must Become Oil-Minded (Part 20)
A small but significant correction arises out of the article ‘Ram blasts bad spending by “big” gov’t’ (SN, October 13, 2017). I recall questioning a reported remark by Mr Winston Jordan, Minister of Finance, about no new taxes but expressed offence at his assertion on the taxes introduced by reference to a game of cards. In fact, this is what he said: “I’ve never introduced a new tax… they were all the same tax. All we were doing is playing cards … we were shuffling them around and so forth”. I took offence for two reasons. Taxation constitutes a deprivation of property, albeit a legitimate one, and no one, let alone the man in charge of taxation policy, should treat it with flippancy.
The second is that it suggests that the work of the Tax Reform Committee (TRC) had no useful purpose. The committee was made up of two accountants (Godfrey Statia, Christopher Ram) and two economists (Drs Maurice Odle and Thomas Singh) with outstanding support from two officials from the Ministry of Finance. Given the demanding deadline set by the Minister, the work was done mainly at weekends and resulted in a 133 page report of six sections and an Introduction and Executive Summary. Even by the narrowest of measures, there were ninety-six specific recommendations.
I am not aware that the Report has been released to the public but that references to the committee rather than the Report have been made in relation to VAT on water and electricity. When the committee sat and argued in the boardroom of Ram & McRae about taxation and poverty alleviation, income inequality, wealth disparity, egregious evasion and administrative corruption, we did so as professionals interested in providing the tax aspect of fiscal policy and public administration as tools for economic and social development. On water, I recall arguing that if I want to enjoy the luxury of a swimming pool then there is no reason why the water I use should be free of VAT, while many items of necessity used by lower income persons are taxed. Continue reading Some of the recommendations from the Tax Reform Committee could be considered for the 2018 Budget
Disposal of Production
Recall that under a production sharing contract, costs are deducted from the value of production to arrive at profit oil to be shared between the contractor and the Government of Guyana in the proportion set out in the contract: Article 11.6. The contractor is also permitted to use as much production as needed in the operations and within the transportation and terminal system.
If the reader thinks that the system is becoming complicated and therefore subject to dispute, it gets even trickier since there may also be some third party usage of the transportation terminal systems. Where there is such third party usage, the quantities so used or lost outside of the contract area is proportionate to the aggregate use of the that system and the value is excluded from any calculations under Article 11. Continue reading Every Man, Woman and Child in Guyana Must Become Oil-Minded (Part 19)
Trotman and Turbot
The good news
This column keeps meeting distractions from week to week. Column 17 last week indicated that Articles 12 Natural Gas and 13 Valuation of Crude Oil would be addressed later in this series. They will have to wait as we turn to two issues taking place this week, one the good news and the other the bad stuff. Let us start with the good news first. Yesterday October 5, ExxonMobil Corporation announced yet another oil discovery offshore Guyana. This means that since the May 2015 announcement of a huge find we have had four other finds. Liza, Payara, Snoek and Liza Deep, and now Turbot. The well was drilled to 18,445 feet (5,622 meters) in 5,912 feet (1,802 meters) of water on Sept. 29, 2017. The Turbot-1 well is located in the southeastern portion of the Stabroek Block, approximately 30 miles (50 kilometers) to the southeast of the major Liza phase one project.
Guyana is blessed. All we can hope is that good and intelligent leadership and competent and careful management will ensure that we do not transform this blessing into a curse. Experience shows that nothing can be taken for granted, internationally or in Guyana. Continue reading Every Man, Woman and Child in Guyana Must Become Oil-Minded (Part 18)