Part 2 of Interview on Guyana ExxonMobil PSA
This blog begins with answers I provided to questions asked of me by a Guyanese reporter regarding the Guyana – ExxonMobil production sharing agreement (contract) and other issues pertaining to oil and gas development in Guyana. I responded to six specific questions, and share my answers with you as three separate blog posts: Part 1-, Part 2-, and Part 3- of Interview on Guyana ExxonMobil PSA. To the best of my knowledge, the newspaper has not yet published my answers.
Question 1.
I understand that you had written the government in relation to providing your services during the negotiation of the Guyana-ExxonMobil deal. Now that you have had the chance to peruse the document, is there any particular area that you would have ensured Guyana had a bigger take?
Answer to Question 1 (continued). Local Content..
In 2015, I wrote the Guyana Government and offered to provide ‘Energy Transactions Legal Services Supporting Guyana’s Oil & Gas Development Program’. However, at that time, I was unaware that Guyana’s PSA with ExxonMobil and its partners would be modified.
After it became public, I reviewed the June 27, 2016 Petroleum Agreement between the Government of Guyana and the Contractor (ExxonMobil and its partners) – commonly known as the ExxonMobil PSA. While there is no particular area of the agreement where I would have ensured Guyana had a “bigger take”, there are specific provisions or issues that, in my opinion, need more attention and should be addressed. Specifically, cost recovery, local content, the Government’s audit and inspection rights, and the stability clause need more attention.
Local Content. Because the oil and gas industry is new to Guyana, local capacity is virtually nonexistent in all areas of the oil and gas business – equipment and material suppliers, oilfield support services, skilled trades, engineers and other technical professionals, etc. According to a former head of the energy market development team at the USAID “Local content is the fastest, most sustainable way for the benefits of the oil and gas sector to accrue to a society”. Article 18 (Guyana Resources) and Article 19 (Employment and Training) of the ExxonMobil PSA, address local content. However, the agreement falls short on requiring employment quotas for Guyanese personnel, as customarily stipulated by host countries. The Guyana Government can accomplish this by implementing a bold, sensible and reasonable Local Content Law that supersedes local content provisions in the Government’s existing petroleum granting instruments (including the ExxonMobil PSA).
Article 18 requires the Contractor to give preference to (i) the purchase of competitively priced Guyanese goods and materials that meet ExxonMobil’s quality, quantity, and deliverability standards, and (ii) employment of commercially competitive Guyanese sub-contractors that satisfy ExxonMobil’s financial and technical requirements. This is a good start. Clearly, there is a considerable learning curve for local resources to develop the required expertise, competence, capacity, and performance. Thus, it will take considerable time for Guyanese resources to fully participate directly in the oil and gas sector. Joint ventures and other business collaborations, with foreign companies, are means by which local Guyanese entities can gain expertise and competence. With appropriate legislation, the Guyana Government can facilitate the latter. On the other hand, the Government must be deliberate in providing incentives that prevent cannibalization and depletion of local resources that currently support Guyana’s existing industries.
Article 19 requires the Contractor to pay the Government a mere $300,000 (US) annually mostly for training of Guyanese personnel on the job and elsewhere in the petroleum industry and technical disciplines at overseas colleges, universities, and other institutions. Notably, the contractor will fully recover these payments as a component of its cost recovery. Unless relying on expatriate expertise in perpetuity, a lot more than $300,000 (US) annually will be needed to educate and train Guyanese for jobs in Guyana’s oil and gas industry.
Issue: While a very small percentage of the Guyanese workforce will participate directly in the petroleum sector, training at all levels is critical to ensuring Guyanese participate fully in the emerging energy economy and do not become second class citizens in their own country. The Government has a major role to play in preparing its citizens for success. If done correctly, Guyana’s future is very bright, and it requires engineers, oil & gas accountants, financial analysts, quantitative analysts, computer programmers, mathematicians, geophysicists and petroleum geologists, chemists, welders, plant operators, business analysts, bankers, pilots, etc. Training and education does not begin in 2020, but should already be in progress and begins in the elementary schools. Government investment in, and curriculum realignment of, primary-, secondary-, trade-, and tertiary- schools, are necessary to address Guyana’s newly emerging business landscape.
Without implementation of a bold, imaginative and meaningful Local Content Policy in Guyana, the benefits of the oil and gas sector will not accrue to the Guyanese society. Thus, Guyanese could become second class citizens in their own country if they will do not have the requisite education, training, skills, business acumen, and expertise to directly participate in the oil and gas sector and own that space. People will have to come from elsewhere to fill the gap. The Guyanese people cannot allow that to happen.
There is much more to be said about local content in Guyana, what it looks like in other countries, and how it should look in Guyana. I will delve more into this topic in upcoming blogs. Please stay tuned.