In February last year, Global Witness published a report entitled “SIGNED AWAY: How Exxon’s exploitative deal deprived Guyana of up to US $ 55 billion”. The report was highly critical of the Production Sharing Agreement (PSA) between the Government of Guyana and ExxonMobil subsidiaries in relation to the Stabroek block. He also expressed concern at the ‘apparently dubious circumstances’ of issuing two further licenses relating to the Kaieteur and Canje blocks, portions of which were sold to Exxon within months of issuing the licenses.
A key finding of Global Witness was that the deal, based on an analysis conducted by OpenOil on its behalf, was ‘extremely poor’, with Guyana standing to lose up to US $ 55 billion on the Stabroek block. Except for quantifying the extent of the loss, this conclusion was in line with our previously stated view that ‘when one assesses the financial implications in terms of the net benefit to the country (ie royalty plus a net share of profit oil without the value of the exemption from various taxes), the inevitable conclusion is that the Agreement is largely a unilateral relationship ‘. Under the Agreement, Guyana receives two percent royalty and 50 percent share of profits after deducting up to 75 percent for Exxon expenses. Thus Guyana’s share of revenue from Exxon’s petroleum operations is 14.5 percent.
We had refrained from trying to estimate the dollar value of the revenue that would accrue to Government and Exxon for two main reasons. The first was that, given the volatility of oil prices, it would be difficult to predict such prices over the PSA period, as several assumptions will have to be made that may or may not occur. The second reason relates to the Paris Agreement which 196 countries adopted in 2015. In that Agreement, the signatories committed to ‘hold the rise in the global average temperature rise to well below 2 ° C above pre-industrial levels and pursuit of containment efforts. temperatures rise to 1.5 ° C above pre-industrial levels’. This recognizes that such an approach would reduce the adverse effects of climate change caused by global warming.
In pursuit of this goal, countries have set specific targets on the gradual elimination of fossil fuel consumption, the major contributor to global warming and the adverse effects of climate change; and intensifying efforts to switch to renewable energy sources. For example, EU countries have pledged to reduce greenhouse gas emissions by 40 percent by 2030. China is also expected to have 20 percent clean energy by 2030 while the United States has promised 40 percent clean energy by 2030. All of this will have a significant impact on the volume of crude oil production and therefore future oil prices.
For Guyana, in signing the Agreement, former President David Granger reaffirmed Guyana’s commitment to implement the Emissions Reduction from Deforestation and Forest Degradation (REDD) Plus Agreement. He further said that Guyana would move closer to 100 percent renewable power supply by 2025, subject to appropriate support and adequate resources, and that through these efforts Guyana can contribute annually to smaller emissions that the equivalent of up to 48.7 million tonnes of carbon dioxide.
Global Watch findings and recommendations
As noted above, Global Watch was very critical of the PSA with Exxon and the financial implications for Guyana as well as the circumstances surrounding the issuing of licenses for the Kaieteur and Canje blocks. The report also discussed in detail: (i) the signature bonus of US $ 18 million that the previous Ministry denied receiving until it faced the evidence through the media; (ii) apparent conflicts of interest involving key government negotiators as well as questions of ethical conduct in their dealings with Exxon; and (iii) the effects of the Paris Agreement on Climate Change.
Global Witness made the following recommendations:
(a) Stabroek Renegotiate Exxon oil license with a view to obtaining a share of the revenue equivalent to international standards. In this regard, the Government should commission an independent evaluation of the amount involved;
(b) Insert a moratorium on new drilling, taking into account climate change issues and a limited amount of revenue that Guyana will receive from Exxon. The other nine licenses issued should be canceled and no new licenses should be awarded;
(c) Investigate the process by which the Stabroek license was negotiated, including whether an apparent conflict of interest prevented the officials concerned from engaging fully in the country’s best interests;
(d) To adequately resource and secure the independence of its anti-corruption agencies, including Guyana EITI and the State Asset Recovery Agency which was investigating the process of granting Kaieteur and Canje licenses.
Government response
The Government had rejected the report, arguing that it was ‘exciting, agenda-driven and highly speculative’; Global Witness presented no evidence of corruption and misconduct by government officials involved; and the timing of the release of the report appeared to influence the outcome of next month’s general and regional elections. It also sought to clarify that the Agreement was influenced by the Treaty on the border with Venezuela; the threat of military action by that country; and since 2013 the Venezuelan navy has disrupted oil survey vessels operating in disputed waters. Despite the Government’s explanation, Global Witness expressed the belief that the argument was not an adequate justification for the ‘exploitative nature of Staxek Exxon’s deal’.
Request for information
Apart from the US $ 55 billion figure that Global Witness has estimated Guyana would lose, the report noted that Guyana would receive 52% of revenues totaling US $ 168 billion while Exxon would receive US $ 157 billion. This prompted a group of concerned individuals and civil society organizations, led by Attorney-in-Law Melinda Janki, to write Global Witness seeking information on the basis of reaching the above figures. The group highlighted that, according to the PSA, Exxon’s subsidiaries would deduct 75 percent of revenue to break even, and the remaining 25 percent would be split equally between Exxon and the Government. Considering the two percent royalty that Guyana would receive, Guyana’s share should be 14.5 percent and not 52 percent as reported in the report.
Global Witness responded that the calculations were readily available but did not provide the information. Instead, he requested a meeting with the group to discuss the issue. However, the group refused to have the meeting unless details of the calculations were available to it. Global Witness did not provide the information. As a result, the group called for the report to be withdrawn.
Withdrawal of report
Last week, Global Witness announced that it was withdrawing its report on Guyana’s oil sector. In doing so, the international watchdog noted that it is redirecting its efforts to the adverse effects of climate change:
The climate crisis is the biggest threat facing the world. If we are to prevent its worst effects we must all act now. For Global Witnesses this has meant redirecting our efforts to combat the major drivers of the climate crisis: deforestation, fossil fuel extraction and burning and corporate capture and other abuse of power driving these destructive activities.
Global Witness has acknowledged that its report was out of focus and for this reason has decided to remove it from its website and stop using it in its campaign work. He also expressed concern about ‘any unintended negative consequences arising from the report, including his debate in Guyana about actions to tackle climate change’.
Global Witness further noted that as the devastating effects of the climate crisis – flood, wilderness, famine – become more severe, its work needs to change; and it is no longer enough for calls to be made for oil and gas businesses to operate in a more transparent and accountable way. Accordingly, it recognized the need to work with others to achieve a ‘just and fair step of fossil fuel extraction’; and to support activist voices around the work in their fight to save the planet from the devastating effects of climate change.
More importantly, Global Witness acknowledged that its revenue analysis assumed that the Paris Agreement would not be implemented. This has led to an overestimation of how much oil Guyana is likely to produce and the value of that oil. Under its new organizational strategy, Global Witness stated that to save the planet, it argued that greenhouse gas emissions must be reduced by 50 percent. He further noted that since the publication of his report, oil prices have fallen by more than a third, especially given the COVID-19 pandemic as well as countries’ efforts to implement policies to limit fossil fuel consumption climate change. Given these considerations, Global Witness has now stated that ‘the prospects for generating sustainable income from new oil projects are increasingly questionable’.
Based on feedback from civil society representatives in Guyana, Global Witness concluded as follows:
Our report has made it more difficult for them to make the case for stopping oil production in their country. Global Witness’s decision to withdraw Signed Away is not an endorsement of the way Exxon or Guyanese officials negotiated the oil licenses granted to the company. We stand by the integrity of the evidence we presented … Most importantly, we strongly support the inspirational investigations and campaigns that so many Guyanese reporters, campaigners and experts have conducted in recent years to increase liability regarding the deals between the government of Guyana and Exxon and other oil companies. It is this work that will hold the powerful to account and the Guyanese people should be proud to have such tireless advocates working for them.
Concluding remarks
Despite Global Witness withdrawing its report on Guyana, most of its concerns in the report, including the recommendations made, remain valid. As noted in our article of 24 February 2020, the report confirms what we have been saying throughout: (i) the 2016 PSA is heavily weighted in favor of the US oil giant; (ii) the agreement should be renegotiated to give Guyana a better deal; and (iii) although companies exist to maximize shareholder wealth, such an approach should be tempered with a social conscience, by not exploiting weak negotiating skills, among others, especially for a developing badly as our country.
We reiterate our previously stated view that Exxon has fully and completely benefited from our desire not only to act as a buffer against the Venezuelan threat to our territorial integrity but also to produce oil in time for the 2020 elections. an oil giant every means possible to get the best result for himself, and for himself alone, without regard to the welfare of the Guyana whose natural resources belong to the citizens of this country and should be exploited primarily for their benefit . The apparent conflict of interest involving Guyanese actors also remains of serious concern.
In the final analysis, future generations will have to pay the price of what happened in relation to the PSA with Exxon as well as other licenses issued. When one reflects on the environmental damage that would be caused when the eight billion barrels of oil are extracted and burned as well as the pittance that we receive for the exploitation of our natural resources, perhaps that it would have been better to leave the oil to its place and focus on developing the Guyanese economy through a diversification program. In all of this, one must not rule out the effects of the “resource curse” and “Dutch disease” as a result of having a mono-product economy, as experienced by some oil producing countries.