The critics of the oil contract and reality – Adam Harris

The critics of the oil contract and reality

Feb 25, 2018  – Kaieteur News Columnist – Adam Harris

Guyana is changing and this is because of the news of the oil discovery.

The change has been subtle, but Friday’s Mashramani float parade exposed the impact the find has had on the country. There were many overseas-based Guyanese who came home, many more than on previous occasions.

There was a time when people were not coming. They were mortally afraid of the level of criminal activity. That began to change when the criminals who were causing the mayhem got removed from the face of the earth. If one expected the people to return in their numbers, that changed with the divisive politics that prevailed.    

Then came the 2015 elections, the massive cleanup of the city and the fiftieth anniversary of the country’s independence. The pressure was on the currency, but so many people came home that the system was flooded with foreign currency.

The reports on the oil find since 2015 has had an impact. There have been criticisms of the contract, but many of the criticisms seem to be above the head of the people, because they only see economic improvement.

Last week I had a chat with an official about the contract; what caused Guyana to give away so much to the oil company to the point that the critics believe that the country will not enjoy a change in fortune. The official said that Guyana’s flirtation with oil dates back to some forty years ago. A company named Home Oil actually made an onshore discovery. That well petered out after a short while and Home Oil simply packed up and left.

Guyana then began an active pursuit of oil companies. Many showed brief interest but declined to undertake exploration. At the same time, there were those working in Venezuela who had to live with threat that if they left to explore in Guyana they would not be allowed to continue in Venezuela. Exxon was one of them in Venezuela.

The official said that those who came began to explore on the continental shelf and came up dry. The result to encourage others to keep coming and exploring was to make the contract even more inviting. Exxon came and went into really deep water off the continental shelf. The others were reluctant to operate in that location.

The 2012 contract came into play, although there was no sign of oil. Meanwhile, money was being spent. The break came in 2016 when the 2012 contract was in force. The official said that Guyana moved to renegotiate the contract, but ExxonMobil told Guyana that it was happy with the 2012 contract, and was not prepared to renegotiate.

Had there been no move by either party, ExxonMobil would have been operating with a contract that offered Guyana a one per cent royalty and smaller taxes until June 2018. There was the consideration that ExxonMobil with its immense resources, could have mobilized and stepped up its exploration and drilling.

In fact, ExxonMobil had said that it was prepared to bring up oil in 2017. By now thousands of barrels of oil would have been extracted and Guyana would have had precious little to show for its oil. In the end there was some renegotiation that increased some factors, including the royalty.

One factor that cannot be overlooked is the tremendous luck that ExxonMobil had. It is unusual for anyone to hit so many holes in one block. ExxonMobil did, and this is what has the critics accusing the government of selling out.

The bottom line is that Guyana will take whatever is on offer at this time. There are now others in the hunt and the government is certain that the contracts will be different.

One factor that stands out is that oil is not going to be the major force it is today. The world is pursuing alternative energy sources. One view is that in another ten years oil will not be so sought after. At the same time, the world market price is not likely to reach the heady heights of US$100 per barrel. That was the price that sparked the frenzy to find oil.

For ten years, Guyana is going to get something for its oil, and with other companies coming into the mix, that take will be more.

I have had conflicts with people who say that the best thing for Guyana would be to have ExxonMobil pick up its boots. They are not thinking about force majeure, which could be extremely costly to Guyana. More than that, there is the impact of the rest of the world on Guyana for breaching a contract. Things in the country would be so much worse.

Minister Joseph Harmon announced last week that the government is not reviewing the contract.

One thing that I have found out is that there are many countries that keep their contracts hidden. Trinidad and Tobago has been in oil for more than a century, but its contract is still secret. However, Guyana has pledged itself to transparency, so it will release the contracts.

There is some money coming. Local investors are already capitalizing, and should anyone talk with the locals, they would say that they are happy with the situation.
I noticed that former President Donald Ramotar feels that the contract for the use of helicopters should have come to Guyana. He certainly did not do his homework. He would have known that Guyana does not have the capability.

For starters, we do not have helicopters that can transport a dozen people. We do not have the search and rescue capability of the contracted chopper company, Bristow Helicopters.

Bristow Group is the leading provider of industrial aviation services, offering helicopter transportation, search and rescue (SAR) and aircraft support services to government and civil organizations worldwide. With headquarters in Houston, Texas, Bristow has major operations in the North Sea, Nigeria, and the U.S. Gulf of Mexico.

Some feel that we have lived all these years with little or nothing. Those who feel that way have not lived in extreme poverty as some 30 per cent of the population. Those are the people who hope for anything.

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  • Mark  On 02/27/2018 at 10:10 pm

    Mr. Adam Harris, we’re concerned about the misuse of oil revenues and corruption.

  • Malcolm  On 03/01/2018 at 10:26 am

    Guyana and the Guyanese people need to know how they will benefit from the existing contract. It is my view that the demand for oil and gas will be around for at least the next 20 years despite all this talk about alternate energy.

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