February 25, 2018

2% royalty too low

– President’s Petroleum Advisor

… ‘He doesn’t speak for us’, says Gov’t

A contract is an agreement between two parties and when one is dissatisfied then the terms of that agreement could be reviewed and amended, according to the Presidential Adviser on Petroleum, Dr Jan Mangal.
Dr Mangal made the statement while speaking to reporters following a discussion on the Government’s vision for the oil and gas sector at the University of Guyana’s Turkeyen Campus on Wednesday.
“A contract is an agreement between two people and both parties need to be comfortable. If one party becomes really uncomfortable it will be changed. Guyana is a sovereign country, the evidence out there from around the world is that when situations change, like look at the price for natural gas, people sign contracts for natural gas at very high price long-term contracts, the price for natural gas has dropped drastically, people are renegotiating those contracts,” he stated.

Dr Jan Mangal and Vice Chancellor, Professor Ivelaw Griffith

He added that if a contract is amended then the oil companies would contend that Government is discouraging investments, but noted that investments ought to be weighed compared to the level of comfort with the contract.
He explained that if Guyana decided to amend its contract with ExxonMobil then there will be the perception that it does not know what it wants but noted that he believes otherwise.
“We have to be careful not to simplify too much. It is not black and white, there could be a whole lot of grey area in the middle,” the petroleum expert noted.
When asked about whether he thinks the contract should be renegotiated, Dr Mangal stated that while he has his views he is not ready to pronounce on that publicly but did say it is a topic of discussion with the Government.
“Last year the focus was getting the contract out so Guyana could get a comfort level of what the contract was about. The process has just started; it will probably take some time for the people to do analyses and Guyanese as a whole to decide what they want to do… sticking with things how they are or

looking for another solution,” he explained.
“It is part of my remit to push for transparency so I don’t want to be in a situation where information is withheld from citizens and then they develop mistrust or further mistrust of the industry. We need Guyana and Guyanese to be comfortable with what they have and the direction they take. So, the way to do that is by putting information out there and not withholding information,” he noted.
Dr Mangal informed that following the release of the contract in December of 2017, he is now in the process of organising a team of experts to review the contract for the Government to decide a way forward.
“I am pushing to get experts… to get support from the IDB, IMF, etc to go and do thorough review of the contract. Some of them already have reviewed the contract so it’s the case of doing more of that and getting results and then for Government to look at the results and decide what to do,” he related.
When asked if those reports should be made public, the oil and gas expert said it is his belief that all things should be made public so as to encourage transparency.

Low royalty
Under the renegotiated agreement, Guyana receives two per cent royalty on earnings from ExxonMobil’s oil sales while the US oil giant would not be required to pay taxes on its share of the profits and according to the President’s Petroleum Adviser that is low compared to global standards. He also raised concerns about the system used to negotiate that agreement and also the expertise of the persons doing the negotiating.
“What we can do is look at what are the international norms. Royalty, when you look around, is more between 10 and 20 per cent, not two per cent. Tax is usually 20-30 per cent in some places, the production split of 50-50 is not too bad,” Dr Mangal noted while responding to a student’s question about whether the Government negotiated a fair contract.
“If a process was followed then we would know who was involved, knew their competencies, expertise and that they went there to bat for Guyana. A lot of people in Guyana right now are questioning that,” he added.
The presidential advisor said generally oil companies are very powerful and experts in everything they do and they know how to influence governments to a “T” but would buckle under public pressure and as such he encouraged Guyanese to engage in “intelligent debates” on the future of its oil and gas sector.

Large concession
Based on the 1999 agreement and the new 2017 deal, ExxonMobil is controlling the entire Stabroek Block of about 600 blocks or 10 times more than what Guyana’s laws allow. That was raised by a law student of the university who sought to get clarification and Dr Mangal’s opinion on the control of such a large concession.
“It is not good for one company owning too much of your acreage. Exxon already owns over 50 per cent of the acreage in Guyana. That’s not good for Guyana,” he said.
“The other thing to consider in Guyana that this is a first project. Guyana is trying to attract international investment, however, Guyana needs to also remember that the Stabroek Block is a huge block and that contract promises the whole block. It could be that all of Guyana’s oil is in the Stabroek block… So if this was a small block then it would be okay to say oh well let’s leave it to the next block we will get a better deal but the block is a huge block so Guyanese needs to weight the tradeoff with that situation of the blocks and trying to attract foreign investments,” Dr Mangal added.
He noted that in some countries, they mandate competition and control who the blocks are allocated to while recommending that a review of the block allocation be done.

Govt’s response
However, mere hours after Mangal delivered his comments on the controversial ExxonMobil contract, the government sought to dissociate itself from his positions.
“The Ministry of the Presidency puts on record that Dr. Jan Mangal, Presidential Advisor on Petroleum, is not authorised to speak on behalf of His Excellency, President David Granger or the Government of Guyana,” the Ministry of the Presidency said in a one-line statement issued on Wednesday evening.
Mangal delivered his presentation in his capacity as Presidential Advisor on Petroleum as was stated on the University of Guyana programme for its “Discussion on the Government of Guyana’s Vision for the Oil and Gas Sector”. He was introduced by that designation and at no time did he say whether or not he was speaking in his private or official capacity.
Mangal’s latest short-term contract expires in March.
Dr Mangal has a Doctorate in Offshore Geotechnical Engineering from Oxford University and a Bachelor in Civil Engineering from the University of Edinburg. He worked in the marine and oil and gas industries for over 18 years, where he spent 13 of those with US oil giant, Chevron, working on major projects in the USA, West Africa and Asia.

GIPEX Summit
The University of Guyana hosted the discussion on the day the inaugural Guyana International Petroleum Business Summit (GEPEX) opened and his absence from the event was notable.
When asked about that, he told reporters that he was never invited to the event despite his boss, President David Granger, being listed as one of the speakers.
“I was not invited to go so that’s the main reason. If you looked at the website, you will see President Granger picture was there. I would assume he was invited,” he said.
However, the President was a no show at the event.