ExxonMobil Guyana's oil contract can be renegotiated, zero taxes and two percent royalty is not the norm – Govt. advisor
Petroleumworld 02 08 2018
Advisor to President David Granger on Petroleum, Dr. Jan Mangal, yesterday said that the ExxonMobil production sharing agreement (PSA) with Government can be renegotiated. He added that zero taxes and two percent royalty in the current agreement is not the international norm.
Delivering a presentation on the Government of Guyana's Vision for the Oil and Gas Sector at the University of Guyana, Dr. Mangal said that the current contract must be compared to what obtains internationally.
Dr. Mangal is a Guyanese who has spent 18 years in the industry, 13 of them with Chevron working on major oil and gas projects in the United States, West Africa and Asia. He noted that contracts should always be reviewed as new information becomes available.
“Contracts are always changed. A contract is an agreement between two people. Both parties need to be comfortable. If one party becomes really uncomfortable it will be changed,” Dr. Mangal pointed out.
He said that Guyana is a sovereign country and the evidence around the world is that contracts can be renegotiated as the situation changes.
“Look at the price for natural gas…people sign contracts for natural gas at a very high price. The price of gas has dropped internationally, people are renegotiating those contracts. A contract is an agreement and people need to be comfortable with it,” Dr. Mangal noted.
He stated that the question of renegotiating the contract is one that the people of Guyana must answer.
Asked whether he agrees with the feedback so far from the public that the contract should be renegotiated, Dr. Mangal said that the people of Guyana are doing a great job with the information which has been provided to the public.
“I have a view on it. I am not at the stage yet where I am sharing that view publicly, but it is under discussion within Government,” Dr. Mangal stated.
Dr. Mangal said that this discussion must continue. He noted that he will be preparing a white paper on the oil and gas sector for submission to President Granger, shortly.
According to Dr. Mangal, the focus last year was to get the ExxonMobil contract released to the public.
Dr. Mangal expressed his happiness that the information is out there and people are doing the analysis for themselves.
“It will take some time for people to do the analysis and for Guyanese as a whole to decide what they want to do. Look at the tradeoffs between sticking with things that they are or looking for another solution,” Dr. Mangal noted.
Minister of Natural Resources, Raphael Trotman, spoke highly about being able to increase the royalty from 1% to 2% when Guyana signed the 2016 PSA with ExxonMobil and its partners following negotiations to amend the 1999 agreement.
“Royalty when you look around is more between 10% and 20%,” Dr. Mangal stated. He noted that in some places, the royalty is much higher than 20%.
Another contentious issue is the zero taxation contained in the ExxonMobil contract. Generally, taxes are applied after production oil is split between the contractor and the Government.
“What we can do is look at what are the international norms. Tax is usually 20-30 %. In some places it is much higher than that,” Mangal noted.
He acknowledged that the production split of 50-50 is not too bad.
He cautioned that oil companies will always share the view that renegotiating the contract will discourage investment. This, he noted, should be considered along with the effect of Venezuela aggression.
“Guyanese need to weigh that,” Dr. Mangal stated.
Story from Kaieter News
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