Is Exxon Taking Advantage of Tiny Guyana's Huge Oil Wealth?

[cryptocurator + 17]

I guess this is another resource curse story ... The IMF is calling on Guyana to rewrite its tax laws because of an Exxon Mobil deal there that is unusually favorable to the oil giant: meaning, below the international standard for big oil exploration deals. Exxon of course says there's nothing unfair about the deal, but it's easy for someone to take advantage of a country like Guyana that has no experience dealing with these huge companies. 

https://www.bloomberg.com/amp/news/articles/2018-04-09/exxon-sparks-imf-concern-with-weighty-returns-in-tiny-guyana

[TraderTate + 186]

I think this is a good topic to bring up and definitely worth talking about; however, I'm not so sure that Bloomberg handled this well. They went for the headline, but bury half of what the IMF actually said. And Exxon has a point here: It got a good deal because it went into Guyana to explore when no one else would. At the time, it was a major risk for Exxon so they got a good deal that will still earn Guyana more than it's ever imagined. I think one can argue that this deal wasn't "below the international standard" for unproven "frontier" venues in oil and gas exploration (and deepwater, at that). 

[TomTom + 183]

I don't see why Guyana would not benefit... rewriting the tax law will most likely result in more money landing in the pockets of corrupt officials.

[J Owens + 45]

7 minutes ago, TraderTate said:

I think this is a good topic to bring up and definitely worth talking about; however, I'm not so sure that Bloomberg handled this well. They went for the headline, but bury half of what the IMF actually said. And Exxon has a point here: It got a good deal because it went into Guyana to explore when no one else would. At the time, it was a major risk for Exxon so they got a good deal that will still earn Guyana more than it's ever imagined. I think one can argue that this deal wasn't "below the international standard" for unproven "frontier" venues in oil and gas exploration (and deepwater, at that). 

Yeah it's definitely not as black and white as it seems. Exxon would argue that it took all the risk and that the alternative for Guyana would be to have a 'favourable' portion of nothing.

I do agree though that this is somewhere where international regulation is needed, arguably going beyond simply getting these countries good deals but also assistance in setting up a wealth fund so as to help avoid the oil curse. Always going to be tough to introduce regulation without scaring the oil majors away though....

[Petar + 76]

" IMF in report suggests Guyana should rewrite its tax laws after "favorable" oil deal with Exxon". Big oil will go where the tax codes are the lowest....

[pinto + 293]

Legal plunder. Guyana will receive 2% royalties on oil produced when production beings in 2020. That’s about $1 million a day. The international norm for profit sharing’s are closer to between 10 and 20 percent. David vs. Goliath.

[BlackTortoise + 103]

In the original agreement Guyana had zero, now they have 2% which is not great, but much better than before. Guyana would have no way to utilize its natural wealth if there is no Exxon because they don't have expertise in this industry. Exxon has give them that opportunity. Maybe not the one they wanted but at least now they have an opportunity to get to their wealth. 

[TraderTate + 186]

Exactly, but this is how it goes. The next supermajors to come in should definitively not get a good deal. The first one on the scene willing to take the risk gets the deal. The IMF isn't even saying the Exxon deal is bad. What they're trying to do is make sure there isn't a run on Guyana wherein a bunch of big companies are fleecing it and running. This is about future deals, not the Exxon deal. 

[dowmike + 37]

Read the Bloomberg story. Everyone notice how they split the IMF quotes up and pushed the bit about this being a usual kind of frontier deal to the bottom so they could have their headline?

And re JOwens, I agree, but that's exactly the IMF is doing here. They are paving the way for a more constructive deal going forward. But I agree with everyone that Exxon took the big risk here. Guyana wasn't on anyone's deepwater map before this. Not that supermajors aren't known for taking advantage, but ...

[Rodent + 1,424]

This was a HUGE risk for Exxon. It makes sense to me that they should bargain for a killer deal. This opens up a world of opportunity for Guyana. 

 

[Missy + 43]

4 hours ago, J Owens said:

I do agree though that this is somewhere where international regulation is needed, arguably going beyond simply getting these countries good deals but also assistance in setting up a wealth fund so as to help avoid the oil curse. Always going to be tough to introduce regulation without scaring the oil majors away though....

Ugh. No more regs. You hit the nail on the head when you say it will scare oil majors away. There is lots of risk here to develop new plays in unknown regions. It has to be well worth their while. 

[Marina Schwarz + 1,576]

Yes, but since producing regions won't produce forever, in the end the majors will have to consider frontier regions, regulation or no regulation. I wonder what the reserve replacement rate is now. It was very, very bad a couple years ago.