Contract stacked in Exxon’s favour – Jagdeo

Guyana’s renegotiated contract with ExxonMobil was released only days ago, and analysts and commenters have already expressed concerns over the contract’s content.
One such concern is Guyana agreeing to allow ExxonMobil’s affiliates almost unmitigated access to its natural gas while the company is drilling for crude oil. A part of this contract stipulates that Exxon can use gas produced from any oil field within the contract area for its own operations.

During an end-of-year press conference hosted by the People’s Progressive Party, Opposition Leader Bharrat Jagdeo observed that besides all the goodies ExxonMobil got, it also received a commitment to use recoverable natural gas for its own operations, with an option to market the excess. According to Jagdeo, there are considerations that should have been resolved before such commitments should have been given.
“From the first meeting I had with Exxon, I said, ‘Have you done a feasibility study about gas? What are the incremental benefits to the company and the country to pumping this gas back into the wells? How would it impact recovery of oil versus using the same gas onshore for other value-added activities?’ ” Jagdeo recalled.
“Until today, that question has not been answered; and until it is answered through a feasibility study, this Government should have never committed us to a position on gas. They gave away the patrimony of our country. Gas, in the future, may be even bigger than oil, like it is in Trinidad and Tobago. We don’t know about subsequent discoveries.”
Jagdeo noted that notwithstanding the company’s utterances that the deal is a fair one, ExxonMobil came out with several advantages. The former President said that when a comparison is done of what ExxonMobil got to what Guyana received, it would be observed that the renegotiation worked significantly in that company’s favour.
“Who guided them (Government) on gas?” Jagdeo questioned. “What feasibility study (on) value added (potential) guided their consideration to lock us into an agreement now on gas in this arrangement? So now that the contract has been released, there are hundreds of new issues we have concerns about, that will harm this country in the future.”
Natural Gas
Mined from deep beneath the earth’s surface, natural gas is composed of methane as well as both hydrocarbon and non-hydrocarbon gases. Not only is it a fossil fuel, it is also non-renewable. While there are some concerns about the applicability of the usage of the gas in Guyana, it is a major driver in neighbouring Trinidad and Tobago’s energy sector.
Exxon’s right to use this gas is enshrined in Article 12 of the contract, titled ‘Associated and non-Associated gases’. According to the contract, usage of the gas can include gas injection (a secondary gas production method), lifting and power generation.
Article 12.1 (b) states: “Based on the principle of full utilisation of the Associated Gas, and with no impediment to normal production of Crude Oil, a plan of utilisation of the Associated Gas shall be included in the Development Plan of each oil field.”
It goes on to state that, “if there is any excess Associated Gas in the oil field after utilisation pursuant to (secondary gas production methods), the contractor shall carry out a feasibility study regarding the utilisation of such excess Associated Gas. Such a feasibility study, if completed before submitting the development plan of an oil field, shall be included in the plan.”
The contract also states that if the parties come to an agreement that the gas has no commercial value, then it would be disposed of by the contractor “in the most economic manner.” It notes that this will be done in line with international petroleum industry practice, once it does not interfere with normal crude oil production.
The contract sets out that Exxon can choose to market the available natural gas both within and outside of Guyana. Exxon will also have the right to process natural gas for conversion to liquids, chemicals or similar products.
It adds that: “In the case of Natural Gas, the contractor and the Minister shall agree on a methodology for valuation of Natural Gas under this Article 13.1 (b) (ii) which represents the fair market value of such Natural Gas at the delivery point, taking into account composition of the Natural Gas.”
The Stabroek Block is 6.6 million acres. Esso Exploration and Production Guyana Limited (Exxon’s subsidiary) is the operator and hold a 45 per cent interest in the Stabroek Block. Hess Guyana Exploration Ltd. holds a 30 per cent interest, and CNOOC Nexen Petroleum Guyana Limited holds a 25 per cent interest.