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ExxonMobil’s surprise bid for new oil blocks

ExxonMobil’s surprise bid for new oil blocks

Editorial

Kaieteur News – The oil world is one of never-ending surprises.  For there is the ExxonMobil-led consortium bidding for some of the oil blocks Guyana has put up for auction.  Notwithstanding the application of the terms and conditions of the new Production Sharing Agreement (PSA) to the winning bidder on these oil blocks, ExxonMobil has dived into the bidding process.  Strange things, indeed, have become inseparable from the ballooning oil sector in Guyana.

It was the same ExxonMobil, through its Guyana Country Head, Mr. Alistair Routledge, who asserted that any touching of the existing financial provisions in the 2016 ExxonMobil oil contract would have a material impact on the company.  There were all kinds of scary talk about spooking investors, and how Guyana could get a bad reputation in the global investment world.  There were even nuanced expressions of how ExxonMobil may have to rethink its Guyana investment, and similar such veiled threats under the pretense of great corporate concern, nervousness, and fear.  So, what is different or less material now in this bidding by the company and its partners for oil blocks under the auspices of new PSA?

The new PSA is very specific in its financial terms that applies across the board.  We focus on only two of these terms today.  They are royalties and taxes, and both of which are marked at 10 percent in the new PSA regime.  There is something interesting going on here with this development of ExxonMobil in the thick of the bidding.  When Guyanese clamored and pressed for scrapping or revising in some form the ugly 2016 ExxonMobil oil contract, the primary objective was to get more for Guyana, a share that can be said to be fair for Guyanese.

By no stretch of the imagination or intellect can a royalty of 2 percent on high-quality oil be said to be fair, reasonable, or justified.  It cannot be justified with ExxonMobil’s low breakeven point.  But no one knew where better than 2 percent in royalty in hard, genuine negotiation would finalize.  It could have been double or triple that 2 percent at 4 or six percent respectively, which a harried and hard-pressed ExxonMobil may have conceded and declared to be eminently fair.  Or, it could possibly have been more than even 4 or six percent, but it was unknown.

The same could be said for taxes, which are currently at zero for ExxonMobil, pursuant to the 2016 oil contract.  Again, the pressure from Guyanese was that since all Guyanese businesses and individuals paid taxes when such are due, then the same should and must apply to ExxonMobil. As with the dirt-cheap 2 percent royalty, ExxonMobil similarly dug in its heels and resisted any talk of taxes in any percentage.  The articulations from the company, when such did emerge, was that, as in the instance of royalties, any talk about changing the financial terms of the 2016 contract would be a development of major and deeply troubling proportions for the company and its partners.  Their plans and visions would be undermined, their investments to date would be impaired.

Yet here we are in 2023, and the issue before is bidding on the newly available oil blocks, and ExxonMobil seemingly has no anxieties, no restrictions, and no agitations over bidding, and if successful, paying not just 10 percent in royalties, but also 10 percent in taxes. This goes against the grain of all that ExxonMobil has been saying before.  What could this clever American oil operator be up to with this bidding, and with Guyanese leaders and people unsure of where it is heading?  Or could it be that this was part of its plan cooked up in advance with the PPP/C Government to expand its footprint in Guyana’s oil waters?  For which group in the bidding has the financial firepower to outbid ExxonMobil for these oil blocks?  In brief, what does ExxonMobil know that Guyana (and nobody else) knows about these blocks?

It is unlike ExxonMobil to engage in bidding blindly, and especially when the new PSA terms are so different from what the company enjoys under the 2016 deal.  This oil business is getting trickier by the day, and it is not to Guyana’s benefit.