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Guyana could experience delay on Exxon's oil royalties due to lack of ring fencing protection in oil contract IMF

 

 

By Kaieteur News

GEORGETOWN

Petroleumworld 08 20 2018

Guyana could very well experience delays in receiving its portion of the profits from ExxonMobil's Liza Phase One Project. This is due to the fact that the Government failed to include ring fencing provisions in the contract it signed with ExxonMobil.

The International Monetary Fund (IMF) emphasized this point to the government during a four-day visit in March last.

The Fund said that ring fencing provisions ensure that expenses associated with a particular well or even the entire field can only be deducted against revenue from the same well or field.

The IMF noted that unfortunately, Guyana's oil deal with Exxon Mobil lacks this type of protection. According to the Fund, ExxonMobil can allocate costs from any oil well or even the entire field, to another. This means that expenses from the entire Lisa Phase One Project can be carried over to Exxon's Lisa Phase Two Programme.

ExxonMobil has already told the IMF that the cost to develop the Lisa Phase One Project will be $4.1B. The Lisa Phase Two is projected to cost $10B.

The Fund warned, This asymmetrical (irregular) treatment of profit and cost oil will benefit the contractor at the expense of delaying government revenue. For example, in the case that multiple fields are developed, the amount of profit oil to be shared from the first producing field will be reduced by costs incurred in developing subsequent fields. This could have significant implications in terms of delaying government revenue, especially in a large, multi-field project.

The IMF also bemoaned the size of the contract area ExxonMobil has control over. In this regard, it stated that the contract area of Stabroek block is disproportionately large by international standards.

The IMF strongly suggested that the government consider a ring-fencing rule for future developments. (Kiana Wilburg)

________________________

Story from Kaieteur News

kaieteurnewsonline.com
08 19 2018

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