By Christopher M. Matthews and Kejal Vyas | Photographs by Oscar B. Castillo for The Wall Street Journal
GEORGETOWN, Guyana -- To mark the flow of the world's biggest
oil discovery in years, President David Granger declared a new
holiday, National Petroleum Day, on Dec. 20.
Backed by soothing Caribbean tunes in a video address to his
countrymen, Mr. Granger said oil riches would soon transform this
poor South American country, and he would put the proceeds to work
for all through a sovereign-wealth fund that prioritized investment
in education and infrastructure.
"Guyana's future is brighter with the beginning of first oil,"
the former army brigadier said in the video. "The good life for
everyone beckons."
Yet as Guyana heads into an election March 2, the almost surreal
reversal of fortune is turning out to be a source of strife for
this jungle-covered former British colony. Many here worry that the
country -- which has virtually no oil experience -- is wildly
unprepared to become the planet's new petrostate.
An oil-sharing deal with Exxon Mobil Corp. is estimated to
shower Guyana with nearly $170 billion in revenue in coming
decades, a giant windfall for a country of 780,000 people with an
annual budget of about $1.4 billion and the lowest per capita
income in South America after Bolivia.
It's also kicked off a fuss over fairness and secrecy over the
price of the contract and how it was handled. At the heart of the
debate is a renegotiated production-sharing agreement signed in
2016 by Guyana's natural resources minister -- just days before
Exxon disclosed an increased estimate for the size of its find.
Amid mounting criticism of the terms, Guyana's resources
ministry recently hired U.K. law firm Clyde & Co. to examine
the circumstances leading to the 2016 deal. It found that Exxon
pressured Guyanese officials into signing the deal in a short time
frame, "presumably because knowledge of a 'world class' discovery
could have altered the government's negotiating position,"
according to a copy of the Jan. 30 investigative report reviewed by
the Journal.
The resources minister, Raphael Trotman, a close political ally
of Mr. Granger's, agreed that Guyana might have secured better
terms with Exxon with a lengthier negotiation, but called the rush
to sign with the American oil giant necessary due to hostilities
with neighboring Venezuela, which in the past had sent naval
vessels into Guyanese waters in a dispute over the territory where
the oil was found.
"This is all new to us," Mr. Trotman said in an interview.
"We're a nation of skeptics. We've never had anything good going
our way and even the possibility of prosperity scares people."
Exxon declined to discuss whether it pressured Guyana's
government. It defended the deal as fair for a first-time producer
such as Guyana.
"It offers globally competitive terms," said Exxon spokesman
Casey Norton. "It was done at a time where there was significant
technical and financial risk."
The deal comes at a good time for Exxon, which has been
struggling to maintain its leading status among global oil
companies in recent years. Exxon expects a return of at least 30%
in Guyana, more than double the 15% return the industry regards as
the lowest necessary to justify investment.
Since first striking oil there in 2015, the Exxon-led
consortium, which also includes Hess Corp. and China National
Offshore Oil Corp., has repeatedly raised estimates for how much it
can recover, and recently upped it to more than 8 billion barrels.
The first vessel carrying Guyanese oil, which is extracted 120
miles offshore and sold directly to market, set sail last
month.
The dispute over the contract has sharpened divisions in Guyana,
which has been riven by racial tensions among its citizens, mostly
descendants of African slaves and indentured laborers from India,
since becoming fully independent from Britain in 1966. Before the
discovery of oil, the country's biggest industries were gold mining
and rice and sugar farming.
Global Witness, a London-based watchdog group that seeks to
expose what it sees as resource exploitation in poor countries,
estimated in a report this month that the deal pays Guyana some $55
billion below market value for its resources over three decades.
The group also provided documents to the Journal about the process
that led to the renegotiation.
Global Witness's report prompted a response from the People's
Progressive Party, the group of largely Indian Guyanese that had
held power for two decades before a multiethnic coalition won a
one-seat majority in the country's parliament and made Mr. Granger
president in 2015.
"We were underserved in the negotiations," said Bharrat Jagdeo,
a former president and head of the opposition party, in a public
statement after the report's release. "Guyana did not get its fair
share of the deal."
That in turn led Mr. Granger's government to accuse Global
Witness and other outsiders of interfering in the March 2
election.
"This timing cannot be seen as a coincidence and it appears as
though it is seeking to influence the electoral outcome," it said
in a response to the Global Witness report. "It is time that the
people of Guyana enjoy the right to self-determination and their
own destiny without interference of foreign influences."
Jonathan Gant, senior campaigner at Global Witness, said his
group is nonpartisan. "The Guyanese people deserve accountability
and transparency into how this deal was negotiated and in whose
interest," he said.
Despite the fallout, neither Mr. Granger's coalition nor the
main opposition party have said they want a wholesale renegotiation
of the contract with Exxon, or a halt to the gusher of money it is
about to bring. But both say other contracts signed after 2016
could be revoked and future deals, including with Exxon, will
require better terms. Both sides have also said they would evaluate
direct-cash transfers of oil proceeds to citizens as a way to
distribute the wealth.
First discovery
Guyana initially signed an exploration agreement with Exxon in
1999. While an assessment by the U.S. Geological Survey had
estimated more than 13 billion barrels of crude below the seabed,
which wraps around the shoulder of South America, Guyana logged
some 40 dry wells before Exxon made its first discovery in 2015,
according to Robert Persaud, Mr. Trotman's predecessor as natural
resources minister.
Previous governments had struggled to keep companies interested
in exploring due to hostilities with neighboring Venezuela and
Suriname, both already oil producers. Each had sent gunboats,
seeking to reclaim disputed waters from Guyana, which has no navy,
paralyzing operations for long stretches. An earlier Exxon partner,
Royal Dutch Shell PLC, pulled out in 2014, selling its shares for
$1.
Mr. Granger took office in May 2015, days before Exxon's first
find. Within three months, Venezuelan President Nicolás Maduro
issued a decree rekindling a century-old border controversy,
claiming two-thirds of Guyana. Seeking international support, Mr.
Granger turned to his oil partners, publicly arguing that major
companies from the U.S. and China would serve as a deterrent to
Venezuelan aggression. A case over the border dispute is currently
with the United Nations' International Court of Justice.
The task of renegotiating the oil deal was granted to Mr.
Trotman, a family lawyer and former speaker of parliament with
little energy experience. As co-founder of the Alliance for Change
Party, he was a vital part of the coalition that made Mr. Granger
president. Mr. Trotman said his orders from the president were to
work toward getting oil flowing as quickly as possible.
On June 23, 2016, Mr. Trotman emailed a consultant hired to
advise the government on oil and gas issues, saying Exxon had asked
for an extension of some drilling leases that were set to expire,
according to a person familiar with the matter. Mr. Trotman wrote
in the email that he saw it as an opportunity to revise some of the
terms of the 1999 agreement, which split output 50-50 with an
additional 1% royalty for the country.
The consultant sent back his thoughts on Mr. Trotman's proposed
changes on June 27, and suggested the government should get no less
than if it allowed the contract to expire and opened the field to
bidding. The consultant suggested a 10% royalty might be
appropriate.
Another adviser hired by Mr. Trotman's ministry had previously
counseled that Guyana should ask for a 15% royalty, according to
two people familiar with the matter. That adviser also suggested
Mr. Trotman work with a team of 10 or 20 experts on the
renegotiation. The ministry had only one.
Unknown to either adviser, Mr. Trotman signed a new deal with
Exxon four days later on June 27, 2016, the same day the consultant
sent back his suggestions. It kept a 50-50 production sharing
agreement from 1999 in place after Exxon takes 75% of annual output
to recoup its investments and upped Guyana's royalty to 2%. It also
included a signing bonus of $18 million.
Three days after the signing, Exxon announced that results from
a second exploratory well led it to believe it could recover as
much as 1.4 billion barrels of oil and gas from the Guyana field,
double what it had publicly revealed before the renegotiation.
The new deal wasn't made public for months. The government has
said it wanted to keep the deal quiet in the midst of its border
arbitration case with Venezuela, and that legal fees are being paid
for with the signing bonus.
The Clyde & Co. report found that Mr. Granger, the
president, chaired a meeting with an Exxon representative six days
before the new deal was signed. But three advisers to the president
told the Journal that Mr. Granger only learned of the new terms in
early 2017, when one of them suggested a contract renegotiation to
Exxon and was told by the company that a new pact, extending to
2026, had already been inked.
Representatives for Mr. Granger declined requests for comment,
and he wasn't interviewed by the law firm for the report.
Mr. Trotman said that he informed other members of the country's
cabinet.
The report, commissioned by Mr. Trotman, supported his position
that he briefed the cabinet about his intentions to renegotiate,
and cited Venezuela concerns as a key driver for the
government.
Jan Mangal, who served as petroleum adviser to Mr. Granger from
2017 to 2018, believes the government got a bad deal.
"We had all of the bargaining power and it was just given away,"
said Mr. Mangal, a former Chevron project manager and native of
Guyana.
A vocal critic of the deal, Mr. Mangal well understands it has
become divisive. One of the deal's defenders in Guyana is his
brother, Lars Mangal, who is a lead investor in one of Exxon's
largest local service providers, Guyana Shore Base Inc.
"We have completely different views and objectives," Jan Mangal
said. "It has been tough, I'm not going to pretend that has been OK
in terms of the family." The brothers say that while they respect
each other's views, their difference of opinion has led to some
tough conversations at the dinner table.
Lars Mangal, a former executive for oil field service giant
Schlumberger Ltd., said he believes his brother is missing the
forest for the trees. He said Guyana could perhaps have extracted
better concessions from Exxon, but getting oil flowing quickly was
paramount, especially because of long-term questions about global
demand for oil.
"You have to think about the macro and maximizing your potential
as early as possible," Lars Mangal said. "It's good to have debate,
don't get me wrong, but I certainly hope that my views
prevail."
Mr. Trotman was stripped of the oil portfolio in 2018 after the
government created a new energy department. He said he and the deal
he signed have been unfairly villainized by some of his
compatriots. He hopes oil money will soothe hard feelings.
"I'm a man of great faith and I believe it's going to be a true
blessing for Guyana," he said. "I expect it will bring us closer
together."
Write to Christopher M. Matthews at christopher.matthews@wsj.com
and Kejal Vyas at kejal.vyas@wsj.com
(END) Dow Jones Newswires
February 28, 2020 12:17 ET (17:17 GMT)
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