Amid increasing local and international pressures for Guyana to implement ring-fencing provisions in the development of its offshore oil blocks, President of ExxonMobil Guyana Limited (EMGL), Alistair Routledge, has defended the absence of such provisions in the Stabroek Block Production Sharing Agreement (PSA), on the grounds that the company would be able to maximize the resources there, much to the benefit of Guyanese.
“Typically, from my experience in most countries, what matters to the government and the people are really maximising development of the resources, and maximizing the revenue ultimately into the natural resource fund and operating without the ring fencing is what will help do that. It will help us to deliver the maximum recovery of resources and the maximum revenue generation for the country,” Routledge told reporters at his Kingston Office on Tuesday.
Ring-fencing limits the consolidation of projects by a single company, and as such, the costs and revenues associated with each project are accounted for independently. However, according to the President of ExxonMobil Guyana, the issue is largely misunderstood.
“If you just take an idealistic world of two projects side by side, ring fence separately, it is a question of timing of when costs are repaid and revenues are received by the government. Under ring fence, it takes longer to recover costs, revenues go to the government a little earlier but the total is the same,” Routledge reasoned.
He said based on his more than 30 years of experience in the Oil and Gas Industry, ring-fencing prevents companies from being strategic with investments across projects, and hamper their ability to maximize on their resources.
“The potential downside from what we have seen from our experiences is that in doing that… you strand resources because you have tied a project, and you say well there are some resources outside of that ring fence but on a stand alone basis, they are no longer economic or they struggle to compete for investment or because you have made this standalone definitions of projects, you lack the ability to go in and really look across projects and be more strategic in investments, particularly, in things like supporting infrastructure which we have been able to do here,” Routledge explained.
The Institute for Energy Economics and Financial Analysis has, however, argued that the lack of a ring-fencing provision in the Stabroek Block PSA allows the operator to charge Guyana for the cost of new wells ahead of the production of oil.
Noting that the “contract is front-loaded,” the institution is of the opinion that the operators are receiving more than Guyana, particularly, in this, the early years of the contract.
But Routledge maintains that the absence of ring-fencing does not put the country at a disadvantage. He said while it affects the timings of the cash flow, it helps with the better development of the resources of the country.
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