Dr. Vincent Adams is demanding answers from the Government over Guyana’s sudden increase in its share of Stabroek Block production, arguing that the jump to 39.8 per cent raises serious questions about ring-fencing, ExxonMobil’s US$55 billion cost recovery and billions of dollars in costs associated with future oil projects.
In a letter published by Village Voice News, Adams contends that the current arrangement effectively demonstrates that ring-fencing can occur under the 2016 Production Sharing Agreement (PSA), despite the Government’s longstanding position on the issue.
His intervention comes after ExxonMobil announced in July that the consortium had recovered about US$55 billion in investment and operating costs, after which President Irfaan Ali announced that Guyana’s share of total Stabroek Block production had risen from 12.5 per cent to approximately 39.8 per cent.
The Government has stressed that Guyana’s contractual share of profit oil remains 50 per cent. The 39.8 per cent figure represents Guyana’s current share of total production after royalty and cost recovery are accounted for.
Adams, however, argues that the development has exposed a much bigger fiscal question: how long can Guyana retain the 39.8 per cent if new project costs are allowed to enter the same cost bank?
“That was the good news, but something seems fishy going on here with lots of questions, signaling that the 39.8% is most likely short-lived as evident by the fact that the numbers do not add up; and by HE President Ali’s head spinning convoluted press conference.”
Adams challenges Government’s ring-fencing position
Adams is no newcomer to Guyana’s oil and environmental debate. He is a petroleum and environmental engineer who spent about three decades with the US Department of Energy, including service in its Senior Executive Service. He holds a PhD in Environmental Engineering and postgraduate qualifications in Petroleum and Geological Engineering and Geohydrology. He later served as Executive Director of Guyana’s Environmental Protection Agency.
He has previously argued publicly that nothing in the 2016 PSA expressly prevents ring-fencing, a mechanism under which costs associated with one project are not charged against revenues from another.
The issue has become increasingly important as ExxonMobil moves toward additional developments. Government has acknowledged that projects eight and nine will introduce new costs into the cost bank and that, without a different financing structure, Guyana’s share could fall significantly as those costs are recovered.
Adams argues that the current situation therefore requires more than celebration of the 39.8 per cent figure.
“the precedent for ring-fencing has now been set, whether or not motivated by Exxon’s financial interests, and must stay in place.”
He is also calling for the arrangement to be applied retrospectively.
“Moreso, the President must demand that this new dispensation be retroactively dated back to the first ring-fencing point in 2022 when the first project (Liza 1) was truly paid off, along with recovery of the 39.8% worth of USD $B owed to the country since that time.”
That claim is disputed by the Government’s description of the PSA. Officials maintain that the contract has not changed and that the 39.8 per cent is simply the result of lower cost recovery as the consortium recoups its investment.
The US$55B question
Adams’ sharpest questions concern the cost bank.
President Ali has said that while the US$55 billion in expenditure has been recovered, the cost bank has not been completely depleted because operating and other eligible costs continue to be incurred.
Exxon CFO Neil Hansen has similarly said future investment and operating costs will continue entering the cost bank and can be recovered under the existing 75 per cent cost-recovery ceiling.
That is precisely what concerns Adams.
He questions how the Government can say US$55 billion has been recovered for the first seven projects while projects eight and nine have already generated substantial exploration, appraisal and development-related expenditure.
“The Govt must explain how is this possible, and come clean with what are the costs left in the cost bank for projects 8 & 9, other projects in the works, and the cumulative costs carried over every month above the 75% cost oil.”
Adams argues that the expenditure associated with future developments could have begun accumulating well before formal project approvals, given the years of exploration, appraisal drilling, environmental studies and other preparatory work required before a development plan is submitted.
The Government has confirmed that Exxon is pursuing its eighth and ninth projects and has acknowledged that these developments will add further expenses to the cost bank.
Adams also challenges the numbers surrounding capital and operating expenditure, comparing the reported US$55 billion in recovered costs with capital expenditure estimates contained in Field Development Plans.
He argues that the figures warrant public scrutiny.
“With Exxon’s project management expertise, it is hard to swallow that their estimated Capex could be a whopping 52% higher than the actual costs, unless the Guyana Govt happens to be managing their projects.”
He ends with a direct demand for an explanation of what is happening with Guyana’s oil wealth:
“This looks like something fishy going on here with the people’s money that must be explained.”
Adams’ calculations and assertions conflicts with Government’s insistence the existing PSA remains unchanged and that Guyana’s contractual profit-oil share is 50 per cent. The unresolved issue is whether the current 39.8 per cent share can be protected as new projects add costs to the Stabroek Block cost bank.
