ExxonMobil contract leaves Guyana exposed to financial and environmental risks
Guyana faces new criticism from the World Bank for its performance in overseeing a massive offshore oil production project. IEEFA and others have long raised issues about the one-sided nature of the contract that authorizes ExxonMobil and its project partners to drill for oil off the coast of the South American country.
IEEFA has argued that the country not only receives too small a portion of the project revenue but also is at risk due to weak environmental and fiscal contract requirements. In 2022, the World Bank downgraded its rating of Guyana's oversight of the project. In their haste to move forward with drilling, the government and the oil companies have left the country and its people exposed to a series of pollution and financial risks.
Guyana receives too small a portion of the project revenue
The government secured a grant in April 2019 from the World Bank under the Petroleum Resources Governance and Management Project. The grant was meant to provide resources to Guyana to improve the legal, environmental and fiscal operating environment guiding the massive oil project. In March 2022, the World Bank issued an interim report that found the country’s rating had slipped from “Moderately Satisfactory” to “Moderately Unsatisfactory.”
According to the World Bank, grant activities came to a halt at the end of 2021, even though the grant was expected to support work through 2024. The grant was designed to help Guyana boost staff, experts, training and analysis at the Ministry of Natural Resources and Ministry of Finance.
The World Bank website reveals that Guyana issued numerous solicitations for services but did not award very many contracts. One important example: A request for information issued in April 2021 for cost recovery services. A check of the contracts list for Guyana shows that Guyana issued no subsequent contract to a vendor to perform the services. The services included: “Validation of the accuracy of the total Government Share of Petroleum for the period under review.”
One of the most important fiscal issues facing Guyana is determining if the oil companies are complying with the contract. Careful scrutiny of the paperwork submitted with each oil lift and profit statement is important to make sure Guyana is protected. Vice President Bharrat Jagdeo has made it clear that he does not welcome any outside reviews of the oil deal, including the reports issued by IEEFA. The World Bank review, however, makes it equally clear that the government of Guyana does not have the right protections in place.
Other solicitations for services to upgrade environmental monitoring and oversight were also apparently dropped. If Guyana’s government had awarded and implemented such contracts, perhaps it could have avoided a recent embarrassing judicial ruling that found the government broke the law by giving ExxonMobil a 20-year permit when the law only allowed for the award of a five-year permit.
The World Bank makes grants to help countries work in good faith to provide a stable, predictable economic environment. Guyana could learn from the experiences of other countries that have entered into agreements with international oil companies. For many countries, the significant benefits from the venture turned into major scandals. Some combination of poor fiscal planning, lax environmental enforcement or undisciplined money management and spending usually spells trouble, either in the form of tragic environmental accidents or money ending up in the wrong pockets.
Guyana could learn from the experiences of other countries
The World Bank report discloses that Guyana’s activities on the grant project came to a “halt” in late 2021. The government says it wants to realign the World Bank project with new priorities. There has been no public disclosure detailing what that means.
The World Bank grant program has been the subject of controversy since its inception. Some aspects of the World Bank program could bring welcome reforms and strengthen existing fiscal and environmental law and regulations. However, a group of citizens expressed concern at the time that the grant might actually serve to decrease environmental protections. Specifically, they raised concerns that ExxonMobil, the operator of the project, could not meet the zero-flaring requirement in the permit, and the changes brought on by the grant would allow for higher levels of flaring.
The concerns, expressed in early 2020, seem to have been borne out. ExxonMobil has failed to meet the standards in the original permit and has recently been granted the right to flare more frequently. Guyana’s willingness to grant to ExxonMobil the right to flare beyond the original standards took place separately from the World Bank activity. The matter is pending before the courts.
The benefits from the World Bank grant program have yet to be demonstrated.
Oil companies and their project partners often object to environmental and fiscal rules because they take time—and in the oil business, time is money. ExxonMobil and its partners in the Guyana project want to move quickly. In the most recent twist and turns of the oil market more volume extracted at today’s extraordinarily high prices is a strong reason to move quickly.
Over the long term, ExxonMobil has seen revenues drop over the last decade as oil’s market position has been eroded by competition, and several ExxonMobil projects in Canada, Russia in 2018 and again in 2022, and the United States have come up short. The government of Guyana is similarly in a hurry, because the demand for oil may dry up before the wells.
The World Bank’s expression of concern is a warning that unbridled speed of oil development poses risks. The companies have paid more than USD$700 million to Guyana’s account for the country’s share of profit oil and royalties, yet Guyana has released no audit assuring the public that it has been paid the right amount. The public also does not know how costs have been applied to the project. In the meantime, flaring pollution and other risks continue.
When a country makes a promise to reach for higher ethical standards and then walks back on the deal, it is worth asking a few questions.
Related items:
IEEFA. Exxon-led consortium tramples on zero-gas flaring goals in Guyana
IEEFA. Guyana’s oil future relies on ‘lower-than-average governmental take’
