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‘I’m not disappointed with Guyana oil deal’
…ExxonMobil negotiator tells Bloomberg the contract is unfair
“I’ve been reflecting on this for a while, but I don’t feel bad about it. … It’s completely consistent with what we know and what we don’t know,” said Rod Limbert, a geoscientist and former South American exploration manager for ExxonMobil.
Kaieteur News – Rod Limbert, a former South American exploration manager and geoscientist for ExxonMobil, said in a recent Bloomberg article that he has no hard feelings about the oil deal Guyana signed with the US oil major.
Rod Limbert, former South American exploration manager at ExxonMobil
In a recent report by the US media company Bloomberg titled “The secret story of how ExxonMobil got a $1 trillion oil treasure that 30 rivals passed on”, Kevin Crowley highlights the story of the Stabroek block, which currently produces more than 600,000 barrels of oil per day from just three projects (Liza 1, Liza 2 and Payara). The block controlled by ExxonMobil has 11 billion barrels of recoverable oil, worth nearly $1 trillion at current prices.
Limbert was part of the ExxonMobil team that negotiated the Production Sharing Agreement (PSA) for the Stabroek Block, which was later signed by the former APNU+AFC government in 2016 following the 2015 discovery of oil offshore Guyana.
The Stabroek production-sharing agreement has been a point of contention among experts and citizens who believe that Guyana signed an agreement that benefits oil companies more than the country. Although Guyana’s leaders have long accepted the unfair nature of the agreement, the agreement remains in place and ExxonMobil Guyana Limited (EMGL) and its partners Hess Guyana Exploration Limited and China National Offshore Oil Corporation (CNOOC) Guyana Petroleum Limited continue to benefit from it.
Former Natural Resources Minister Raphael Trotman, who served in the APNU+AFC coalition government between 2015 and 2020, signed the much-criticized unfair production sharing agreement with ExxonMobil. The 2016 agreement provided Guyana with an industry-low 2% royalty. Currently, Guyana shares revenue with ExxonMobil, which deducts 75% of the costs incurred to develop the resources in the Stabroek Block. This arrangement lacks ring-fencing, and Guyana will pay for projects that have not yet begun production activities. Every month, the bills for future production developments are added to the list of expenses that ExxonMobil is to recover costs. After deducting 75% to repay the oil company, Guyana shares the remaining 25% 50/50 with ExxonMobil as profit. This is equivalent to 12.5% of operating profits.
According to Bloomberg, Guyana has become the cornerstone of ExxonMobil’s post-pandemic corporate revival. The Texas oil giant owns 45% of the field, which costs less than $35 a barrel to produce and is one of the most profitable fields outside the Organization of Petroleum Exporting Countries (OPEC). With crude currently trading at $85 a barrel, the field can still make money even if the transition away from fossil fuels causes demand to collapse and prices to fall by half.
ExxonMobil’s competitors will no doubt be stung, the report notes. Nearly 30 other companies, including Chevron, passed on the opportunity to acquire the Guyana discovery. Shell, which previously owned a 50% stake, also passed. Chevron is currently in the process of acquiring Hess, which owns 30% of the project, for $53 billion. ExxonMobil filed an arbitration against Hess this year, claiming it had a preemptive right to purchase the shares. (Hess says that right does not apply to a merger.)
Like many geologists, Limbert reportedly knew that the source rock for Venezuela’s oil, the La Luna Formation, extended beneath the Atlantic Ocean to the offshore territories of Guyana, Suriname and French Guiana. The outspoken Australian was fascinated by the onshore discoveries in Suriname in the 1960s, when villagers drilling for water on a school campus stumbled upon what would later amount to a billion-barrel oil field.
Liebert believed the campus’ oil originated from the Guyana continental shelf and migrated more than 100 miles ashore over millions of years. In mid-1997, he pitched the idea to the Exxon team tasked with entering the new basin. “They ended the presentation with a thumbs-down picture,” Liebert said. He contacted the Guyanese government anyway, hoping to get drilling rights. “I just didn’t tell anybody,” he said.
In 1997, Guyana was one of the poorest countries in South America, still plagued by the socialist and isolationist policies of strongman Forbes Burnham, who came to power shortly after independence from Britain in 1966. Limbert and two colleagues flew from Houston to Georgetown to obtain old drilling logs and discuss the possibility of drilling rights with the Guyana Geology and Mines Commission (GGMC).
“The ground floor was really the ground floor,” Limbert said. “I mean, the tables and chairs were on the dirt.” The Exxon team also met with Samuel Hinds, then-President of Guyana, who talked mostly about cricket, Guyana’s national pastime. “I wasn’t eager to talk business because I didn’t have the authority to do anything,” Limbert said. Back in Texas, Limbert, armed with the new data, got permission to begin contract negotiations for the exploration rights.
Citing the high number of failed wells, Liebert negotiated and won a very favorable deal. The Stabroek block Exxon offered was more than 1,000 times larger than the average oil block in the Gulf of Mexico. It required no upfront payment, and if Exxon found oil, the company would receive 50% of the profits after costs.
Bloomberg reported that Guyana was later heavily criticized for the contract. “I’ve been reflecting on it for some time, but I’m not sad about it,” Limbert said. “It’s completely consistent with what we knew and didn’t know.” The deal also helped the government in another way, the report said. Guyana faces a serious border dispute with Suriname to the east and Venezuela to the west. Allying with ExxonMobil means that anyone who picks a fight with Guyana will also pick a fight with the world’s most powerful oil company.
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