Page 5 - LatAmOil Week 34 2021

LatAmOil COMMENTARY LatAmOil

Under this provision, it said, the US super-ma- concluded in 2016 that giving up future oil rev-
jor now has the option to look for hydrocarbons enues to reimburse exploration expenses was an
in any part of the block and recoup all of its acceptable solution. This would not have been
expenses from the money that Guyana’s govern- an unreasonable conclusion, since its contract
ment earns from the sale of oil from producing with ExxonMobil allowed it to claim a sizeable
sections such as Liza-1. share of production despite not having an equity
stake in the project (and therefore no obligation
Front-loading earnings to contribute to project costs or respond to cash
The result of this provision, IEEFA argued, is calls).
that Guyana has been put into the position of
foregoing some of the money it stands to earn in The court of public opinion
the present for the sake of funding the search for Nevertheless, IEEFA has still summoned Exx-
oil and gas at sites that will not come on stream onMobil and its partners to the court of public
for years to come, if ever. (Exploration some- opinion, where explanations of risk and com-
times fails, after all.) mon business practices command less atten-
At the same time, it noted, ExxonMobil and tion than arguments about whether the game is
its partners Hess (US) and China National Off- rigged against the underdog.
shore Oil Corp. (CNOOC) do not have to make These arguments are likely to draw no small
any such sacrifice. Instead, they can front-load amount of support in Guyana, not least because IEEFA has
their earnings from oil sales without regard to many members of the country’s current govern- summoned
how this might affect Guyana’s government, it ment (including President Irfaan Ali) believe
said. that the Stabroek contract is too generous to ExxonMobil
If ExxonMobil’s forecasts for production ExxonMobil. Ali and other members of his
from Stabroek turn out to be accurate, IEEFA administration have said they intend to make into the court
added, Guyana will be entitled to sell enough sure that future exploration and development
oil to earn $6bn per year by 2028, assuming deals are different – that is, more profitable for of public
that crude prices average $50 per barrel. It the government. opinion, where
also stressed, though, that revenues might not Against this backdrop, it may not matter
reach $6bn per year so quickly because of the much to spectators in the court of public opinion explanations of
practice of allowing ExxonMobil and its part- whether IEEFA’s claims are overstated or worse.
ners to recover their exploration costs from oil It may matter more that ExxonMobil is coming common business
revenues. under fire for having the audacity to follow the
Instead, it said, this might not even be pos- oil, even when it happens to lie within the ter- practices
sible until well into the 2030s, by which time ritory of a disadvantaged country. And it may command less
the shift to renewable energy may be advanced matter more that the US giant has the temerity
enough that demand for Guyanese oil will be to keep looking for hydrocarbons rather than attention than
flagging anyway. devoting itself to renewable energies that aren’t
yet able to meet global demand on the same arguments about
Frontier provinces scale and with the same efficiency and economy.
LatAmOil is of the opinion is that IEEFA’s If so, ExxonMobil – and the other interna- whether the game
conclusion is at best overstated and at worst tional oil companies (IOCs) that hope to follow is rigged against
designed to inspire hair-raising headlines scold- its example and achieve success off the coast of
ing ExxonMobil for exploiting one of South Guyana and neighbouring Suriname, which also the underdog
America’s poorest countries. possesses commercial oil reserves – may have to
It is true that the Stabroek contract has drawn start working a great deal harder.
criticism from prominent organisations such as They may find themselves under pressure to
the International Monetary Fund (IMF) and meet burdensome and counter-productive ESG
IHS Markit, a provider of information on key (environmental, social and governance) condi-
sectors of industry around the world. The latter tions in order to secure the financing they need
has drawn attention to the fact that the Guyanese to seek, extract, transport, process, distribute
government’s share of revenues from the devel- and use the fuels and chemicals that sustain the
opment of the block will be below the global world economy.
average, while the IMF has expressed concern And if they do, Guyana might lose out in
about Georgetown’s failure to guard itself against other ways, such as failing to attract as many
the front-loading of costs. investors as it might have otherwise. ™
But it is also true that Guyana’s offshore zone
is part of a frontier province that only began pro-
duction less than two years ago – and that is still
being explored. It is common practice for the
owners of frontier acreage to offer investors very
favourable terms, including reimbursement for
exploration expenses. Indeed, they may have
to do so to convince investors to take the risk
(and spend the money) on exploration before
the province is known to contain commercial
reserves.
What’s more, Guyana’s government may have

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