UG Prepares for First Oil and Beyond
Professor Ivelaw Griffith, C.C.H, Tenth Vice-Chancellor and Principal of the University of Guyana is please to make the following announcements as part of the university's preparation for the First Oil and Beyond.
The Faculty of Technology
has been renamed the
Faculty Of Engineering & Technology
Additionally:
A new department of Pertroleum and Geological Engineering in the Faculty of Engineering and Technology is being planned for operation from January 2019.
A Consortium for Post-secondary Institutions The Higher Education Consortium on Engineering and Mining - is being established to streamlined and strengthen education delivery and
New Associate and Masters degree programmes in Petroleum Engineering will be offered from January 2019 in conjunction with the University of Trinidad and Tobago and the University of the West Indies.
New Programmes
The University will also be offering several new degree programmes:
- Bachelor of Nursing (Berbice Campus, September 2018)
- Associate of Civil Engineering (Berbice Campus, September 2018)
- Bachelor oh Psychology (September 2019)
- Masters in Psychology (September 2019)
- Bachelor in Youth Work (January 2019)
- Masters in Medicine - Orthopaedics and Traumatology (September 2018)
- Bachelor of Science in Food Safety (January 2019)
Sound legal, regulatory framework for oil urgently needed
With Guyana an emerging oil and gas country and with several agreements signed with companies, the primary focus now should be on establishing a sound legal and regulatory framework.
“One of the first things you need is that your legal framework must be in place,” University of the West Indies Professor Emeritus of Mechanical Engineering, Clement Imbert, last Thursday evening told a University of Guyana oil and gas forum.
The Deputy Chairman of the University of Trinidad and Tobago’s Board of Governors told attendees at the University of Guyana’s fifth Conversation on Law and Society, which was held under the theme- Some Economic and Educational Imperatives of the Oil Business- that Guyana needs to move swiftly to get its petroleum laws in place as it plans for the future. Laws, he said, are important as the country and government take into consideration what contractual arrangements will guide the disposal of future oil blocks.
President of the University of Trinidad and Tobago, Professor Sarim Al-Zubaidy, Trinidad and Tobago Methanol Company Chair and University of the West Indies Professor, Andrew Jupiter and retired US Department of Energy Engineer, Dr. Vincent Adams were also part of the panel discussion.
They all underscored the importance of education and training of Guyanese to not only efficiently verify and monitor the sector but to provide the skills needed to use revenue collected from the depletable resource for sustainable economic and other diverse programmes.
Speaking to Stabroek News after the event, Imbert echoed most of what he told attendees at the event, which was held at the Duke Lodge, Georgetown and said that the country has no time to lament on what has happened in the past but must focus on what is best for it going forward.
“Shell and those are coming, there was an eighth oil discovery announced yesterday, whatever happened in the past happened in the past and that is irrelevant now. What is relevant is that you get the best deal that you can get now with the others that are coming and have systems to manage what you already have and plans on what to do with those revenues…because it is a whole lot of revenue, I can tell you,” he said.
“Ensure that your institutional infrastructure is in place to deal with the oil and gas windfall that you have. The infrastructure, whatever commissions, whatever laws you have to craft, you have to start thinking of it immediately so that the governance and the regulations of what is going to happen in the industry is to your benefit. And you must make sure it is that. You have to start preparing your population now. Start educating them now,” he added.
Equally important and Imbert’s advice to the Government of Guyana, was for it to ensure that part of future oil deals caters for a substantial contribution to the education of Guyana’s citizenry, particularly in the area of tertiary education.
He said that the laws and regulations will ensure that companies are held accountable even as the environment and populace are protected.
Cannot depend
“You cannot depend on the companies to tell you the truth. If anyone of them is here forgive me…but you have to verify everything they are telling you. So, your state commissions, ministries, etcetera, all have to be well equipped, as well as the infrastructure and human resource. I am talking the laboratories… the lawyers and so on needed to do the verification to ensure you are getting a fair deal,” he said.
“The education of these people is very important. I spent the first eight years as inspection engineer. The education of your population for all three areas- the service, direct, and all other businesses that service the oil companies, directly and indirectly, are important. You must have a very educated population to deal with that. You cannot depend on what they tell you, ‘Oh Don’t worry about anything’…no! …the world is global and you have to think of that too,” he added.
Former Attorney General and People’s Progressive Party/Civic Member of Parliament Anil Nandall agrees with Imbert on the passing of laws and regulations for the sector and lamented government’s current sloth in ensuring the passage of the Petroleum Commission Bill.
“The Petroleum Commission Bill is obviously one of the most important pieces of legislation. Neither its importance nor its urgency can be over-emphasized. The law that will lay the foundation for Guyana’s emerging petroleum industry. Naturally it will have to undergo several changes after its promulgation. Yet, it has been parked in a select committee for the longest while with no discernable interest in the government to expedite its consideration in that committee. Several months have passed and a single meeting has not been convened,” Nandall lamented.
“So currently, there is no modern regulatory framework in relation to the petroleum industry and the government feels abnormally comfortable with such an unfortunate state of affairs. The bill that is there is not a bad bill except that it (reposes) an unusual amount of power in the minister rather than the commission. Most of what has to be done, is a transfer of the power over to the commission and you will have a fairly good bill as a start,” he added.
Nandlall said that no reason has been given by government for the delays.
“You will note that the 11th Parliament is comparatively one of the least productive parliaments over the last 20 years in Guyana. The Parliament sits less than once per month. When we were in government, even during while we were in a minority government, parliament sat as frequent as once per week on one occasion. We had a packed parliamentary agenda. Now there is hardly a legislative agenda from this government and the few bills that they are bringing. If they are sent to select committees, they are stuck there,” he said.
“Currently there are a series of bills stuck in select committees and there are no good reasons why this is so. But one of the reasons is because ministers are flying around the world and the government, because it has a one-seat majority, doesn’t go to parliament unless all its members are present, which is unusual and a rarity. So one cannot even predict when this bill would come out of the select committee” he added.
Article adapted from: https://www.stabroeknews.com/2018/news/guyana/06/25/sound-legal-regulatory-framework-for-oil-urgently-needed/
Pour oil money into education - University of Guyana's 5th Conversation on Law and Society
VISITING President of the University of Trinidad and Tobago, Professor Sarim Al-Zubaidy has told the University of Guyana’s 5th Conversation on Law and Society that investing oil revenues into education would help fuel further economic growth.
Guyana must also follow guidance from oil-rich countries so as to avoid their mistakes, Al-Zubaidy told the audience on Thursday evening while stressing that “education fuels economic growth…Build the local capacity and capability and ensure that you introduce your local structures into the final process so that you achieve the success of the successful countries.”
Al-Zubaidy also said Guyana must take full advantage of the contribution of the oil sector and use the revenue to transform the economy. “It is therefore imperative that the revenue derived from the sector be maximized and used for the transition of Guyana’s economy to one which is internationally diversified. This would ensure that the life is enjoyed by the future generation.”
The professor, who is an engineer with over 30 years experience in senior academic and administrative positions, also mentioned that developing and maintaining a category of skilled professionals is also very important. From this, he said that the developed personnel should be in place before and after production begins so that the country is not dependent on what is said by the oil companies.
After the presentation, the conversation with the audience began featuring input from Al-Zubaidy, Trinidad and Tobago Methanol Company Chair in Petroleum Engineering Prof. Andrew Jupiter, University of the West Indies Professor Emeritus of Mechanical Engineering Clement Imbert, and retired US Department of Energy Engineer Dr. Vincent Adams.
The conversation revolved around the investment in education which would, in turn, bring about long-term sustenance. It was also said that the government must get the best deals in any production sharing agreement and ensure that parts of these deals have a substantial contribution to education.
Guyana was encouraged by the professors to learn from their country’s failures. Finally, the country received the advice to not only look at the revenue from energy but look at diversifying the economy and not to forget about our other resources.
Article adapted from: https://guyanachronicle.com/2018/06/24/pour-oil-money-into-education
Guyana verifies oil exploration data, as experts stress need for robust system
Guyana has been receiving seismic data and verifying the amount of oil being discovered and the wells that are not commercially viable, the Commissioner of the Guyana Geology and Mines Commissioner, Newell Dennison said.
“We are sufficiently competent to see if what they are saying in terms of what has been represented makes sense so there are formulas, for example, that engineers and geophysicists- and we do have engineers here- can apply in, for example, a downhole log, the logs that are generated that come into our possession. They can look at those logs and from the responses on those logs, we can say ‘yes’ or ‘no’…,” he told Demerara Waves Online News. Dennisson said so far Guyanese authorities were satisfied with the declarations being made. “So far, at least from where I sit, we are satisfied with their prognosis,” he said.
ExxonMobil’s Public and Government Affairs Officer, Kimberly Brasington said, when asked whether her company provides all of the seismic data to Guyana to allow the country to independently verify the amounts of oil found at each well or if they are not commercially viable, said, “Yes, well data is provided to and reviewed with both the GGMC and the Minister of Natural Resources as well as our partners Hess and Nexen, as required by our agreement”.
Other industry experts said consortia such as Esso Exploration and Production (Guyana) Limited- ExxonMobil, Hess, Nexen- usually hire independent consultants to independently verify the oil discoveries for each partner. The experts said even if ExxonMobil or any other company does not consider an area economically feasible, when the area is eventually relinquished that does not prevent Guyana from assigning that area to another company that might consider it as having commercial interest.
Those assurances came against the background Chair of Petroleum Engineering at the University of the West Indies’ (UWI) Trinidad campus, Professor Andrew Jupiter saying that Guyana needs highly trained personnel to interpret the seismic data to determine whether the amounts of oil declared by oil companies are accurate.
“You have to train the best in your country so that you get all the data from that well because…,according to the legislation, all the data belong to the government of the Republic of Guyana so that it means that all the logs that you are on…they will interpret it and you will be able to have an independent calculation,” he told a University of Guyana-organised 5th Conversation on Law and Society: “Some Economic and Educational Imperatives of the Oil Business.”
While Jupiter said Guyana could hire consultants in the interim, he advised that Guyana should be wary of their connections to oil companies.
Former United States Department of Energy (DoE) official, Dr. Vincent Adams added that Guyanese on-sitewould need “free, unfettered access” as part of a verification system. Accountants, he said, are usually required to be present and operating from the same system as the contractor to have access to the information. “We own that information, not the contractor so the most important thing that we can do is to provide oversight,” he said. Adams stressed that Guyanese personnel would have to be trained as good as or better trained than the contractors’ personnel. “They (Exxon and other oil companies) know that. They operate under those same conditions outside this country and we should expect no less and they are expecting us to do it here. It’s nothing we are dumping on them that they are not used to,” said Adams who is also the Engineer-in-Residence at the University of Guyana.
UWI Professor of Mechanical Engineering, Clement Imbert earlier in the presentation stressed the importance of verification by lawyers, accountants to ensure that “you are getting a fair deal” instead of being told that the country would get the monies to spend on economic diversification.
“You cannot depend on the oil companies to tell you the truth… You have to verify everything that they are telling you so that your State Commissions, the Ministry etc. They have to be well-equipped- human resource, as well as the infrastructure- the laboratories, the testing facilities etc;” said Imbert who was an inspection engineer in the oil industry.
ExxonMobil said The current estimate for the Stabroek Block is more than 3.2 billion barrels of oil equivalent and certainly would be more after more data is processed. Brasington explained that Longtail and Ranger drilling results are under evaluation. However, the combined estimated recoverable resources of Turbot and Longtail will exceed 500 million barrels of oil equivalent. Turbo is included in the previously stated 3.2 billion barrels of oil equivalent number.
Based on Trinidad and Tobago’s experience in the oil and gas sector, Professor Imbert recommended that Guyana gets the “best deal” in the Production Sharing Agreements (PSA) to include a “substantial contribution” to mainly tertiary education. In apparent reference to heated public criticisms of the Guyana-ExxonMobil PSA, Imbert said there was no time to look back. “Whatever happened in the past, happened in the past and whatever debate that’s going on now, that is irrelevant. The past is the past. Get the best deal you can get now for that,” he said.
The 2016 revised PSA provides for US$3 million of the US$18 to go to training, in addition to an annual pay-out of US$300,000 each for corporate social responsibility, and capacity building. Projections are that Guyana will earn US$380 million annually from royalties alone, plus a year licence fee of US$1 million.
The UWI academic further recommended that governance and regulation be strengthened to Guyana’s benefit with the establishment of laws, regulations and commissions.
Guyana plans to pass legislation to provide for the establishment of a Sovereign Wealth Fund, Petroleum Commission and Local Content. Guyana has been tapping into industry expertise in that regard from The Commonwealth, World Bank, Norway, United States and Canada.
Article adapted from: http://demerarawaves.com/2018/06/22/guyana-verifies-oil-exploration-data-as-experts-stress-need-for-robust-system/
Pour oil money into education
Visiting President of the University of Trinidad and Tobago, Professor Sarim Al-Zubaidy has told the University of Guyana’s 5th Conversation on Law and Society that investing oil revenues into education would help fuel further economic growth.
Guyana must also follow guidance from oil-rich countries so as to avoid their mistakes, Al-Zubaidy told the audience on Thursday evening while stressing that “education fuels economic growth…Build the local capacity and capability and ensure that you introduce your local structures into the final process so that you achieve the success of the successful countries.”
Al-Zubaidy also said Guyana must take full advantage of the contribution of the oil sector and use the revenue to transform the economy. “It is therefore imperative that the revenue derived from the sector be maximized and used for the transition of Guyana’s economy to one which is internationally diversified. This would ensure that the life is enjoyed by the future generation.”
The professor, who is an engineer with over 30 years’ experience in senior academic and administrative positions, also mentioned that developing and maintaining a category of skilled professionals is also very important. From this, he said that the developed personnel should be in place before and after production begins so that the country is not dependent on what is said by the oil companies.
After the presentation, the conversation with the audience began featuring input from Al-Zubaidy, Trinidad and Tobago Methanol Company Chair in Petroleum Engineering Prof. Andrew Jupiter, University of the West Indies Professor Emeritus of Mechanical Engineering Clement Imbert, and retired US Department of Energy Engineer Dr. Vincent Adams.
The conversation revolved around the investment in education which would, in turn, bring about long-term sustenance. It was also said that the government must get the best deals in any production sharing agreement and ensure that parts of these deals have a substantial contribution to education. Guyana was encouraged by the Trinidad professors to learn from their country’s failures. Finally, the country received the advice to not only look at the revenue from energy but look at diversifying the economy and not forget about our other resources.
Article adapted from: http://dpi.gov.gy/pour-oil-money-into-education/
Start conversation on gas marketing plan
— University of Trinidad and Tobago petroleum expert
UNIVERSITY of Guyana (UG) Faculty of Technology students along with other stakeholders including lecturers of the university on Wednesday participated in a two hour professional engagement seminar titled “an overview of the Liza Field Development Phase 1” facilitated by petroleum expert Lugard Layne.
The discourse which was held in the boardroom of the Faculty of Technology saw Layne, a senior instructor on petroleum engineering at the University of Trinidad and Tobago, examining Phase 1 of the Liza Field development.
In his presentation, the Guyanese lecturer who now resides in Trinidad said the government of Guyana needs to start its discourse on gas market utilisation now.
He stressed the need for a gas market utilisation plan while adding that the natural gas industry can have significant benefits to Guyana.
“Right now it is not in ExxonMobil’s interest to discuss gas utilisation but as a country we should be planning for when that day arises. I am saying that in terms of developing a gas market, the government of Guyana ought to be planning, not tomorrow, not next year; but those set of plans should be going right now. That is one of my concerns; I am not hearing a discourse on the gas market,” he said.
In terms of the development of the gas market, Layne said it is not wise to reinvent the wheel. As such, he suggested a partnership which would allow the government to get initial counts on, aid in the marketing of the gas, how to negotiate the contracts and how to set up the infrastructure.
“Don’t wait until ExxonMobil comes to tell you what they want to do with the gas and then you now trying to come up with a plan. You need to be strategising before they come to you; not after they come to you.”
It should be noted that Minister of Public Infrastructure, David Patterson has repeatedly made it clear that his government will not be rushed into any arrangement with respect to natural gas.
The government had contracted Energy Narrative to conduct a study on the utilisation of natural gas for electricity generation. Guyana Chronicle understands that other companies are also exploring the prospect of utilising natural gas to meet the country’s energy needs.
Wednesday’s discourse is part of a series of talks being facilitated by Vice-Chancellor of the University of Guyana, Professor Ivelaw Griffith.
Article adapted from: https://guyanachronicle.com/2018/06/22/start-conversation-on-gas-marketing-plan
Bulk of Gov't grant expended on University of Guyana oil and gas programme
A significant portion of the $100 M grant which the University of Guyana secured last year as part of Government's effort to help the institution establish an Oil and Gas programme, has been expended. Last year, the Ministry of Natural Resources, the Geology and Mines Commission (GGMC) and the University of Guyana (UG) signed a Memorandum of Understanding (MOU) for a $100 million philanthropic education grant for the period 2017-2018.
The grant provided the University of Guyana's, Faculty of Technology with much-needed equipment for its geology labs, curriculum development, training, outreach, and field research, all linked to the emerging oil and gas sector. It also provided specific allocations for all other faculties for student-centered enhancements at the university.
Speaking about the programme, Vice Chancellor of UG Professor Ivelaw Griffith explained that this is one of the university's most significant grants, with the GGMC. Griffith said that it is an investment by the Government in the institution, in an area critical to the nation's economy. He said that the project is a result of UG long-standing relationship with GGMC. He highlighted the fact, that many of the commission's staff through scholarships has received their higher education at the institution. To date, 87% of the finances have been pumped into realising UG's oil and gas programme.
Some $55M was used for equipment and supplies to the Faculty of Technology's laboratories, pursued by the GGMC, Some $10 M was expended on training; some $16M was for infrastructural projects through UG. When Natural Resources Minister, Raphael Trotman, handed over the first tranche of the funds ($45M) to the Vice Chancellor last year, he noted the government views the initiative as an investment in education, and development. The minister noted that the project is significant since “it represents a renewed and enhanced relationship with the Ministry and GGMC with the University of Guyana,” even as the oil and gas sector develops. Additionally, Trotman said that similar efforts are also needed in the gold and diamond mining sectors as they will not be neglected in the period, post-2020 when oil production begins.
Article adapted from: http://www.petroleumworld.com/story18061402.htm
Head of UG's School of Business not sanguine about 'up front' cash from oil and gas industry
“While the front-loading of contracts and the securing of large contracts might be politically popular it might prove to be economically disastrous, University of Guyana Business Professor Leyland Lucas has said in an article that seeks, in part, to respond to the popular argument touting the virtue of so-called front-loading, that is, the drawing down of significant cash amounts of as yet unearned income from the oil and gas industry.
Lucas, who is serving as Visiting Professor at UG’s School of Entrepreneurship and Business Innovation (SEBI) says in his article that there could be pitfalls associated with the popular “up-front” or front-loading argument that has been steadily gaining traction among ordinary Guyanese.
While alluding to what he says is “an interesting argument to the effect that Guyana would be better off “receiving a sizeable bonus rather than waiting for later disbursements through royalties”, Professor Lucas argues that such an option is not without its potential dangers and pitfalls. He argues that while the “numbers” being touted in the front-loading argument “vary from the well-reasoned to the pie-in-the-sky estimates,” there is need to examine the domestic realities.
“We are a nation with various needs from education to infrastructure. To address those needs we will require a significant influx of financial resources…..however, if that influx is not regulated it will cause inflationary pressures” which pressures, he argues, will not only precipitate “massive inflationary pressures” that are likely to further damage the country’s economy but lead to a further decline in living standards.
Whilst the announcement by Exxon Mobil of the discovery of oil, offshore Guyana, just under three years ago has triggered expectations of a swift and miraculous economic transformation amongst the uninitiated Lucas cautioned that a massive influx of cash does not speedily correct the errors of previous decades. “Engineers, scientists, agricultural experts and doctors are not created overnight. It takes years of training to acquire these skills. If the nation is to acquire these skills then it must be done over time.”
An alluding to the volatility of the global oil market, Professor Lucas raised the question as to where the resources will come from “when an engineer needs specialized training in five years but the bottom has fallen out of the oil sector.”
And in concluding his position on front-loading Professor Lucas contended that “a massive unregulated inflow of cash through a significant bonus may entice policy makers to undertake massive investment projects which the economy cannot embrace with its limited skills inventory. Instead, a gradual inflow of expenditure might prove more beneficial to the nation in the long run.”
In his article the Guyanese academic also weighs in on the subject of the controversy that has arisen over the Exxon Mobil contract including the call in some quarters for a re-negotiation of the agreement. Lucas argues that the controversy associated with the current contract cannot ignore the fact that a contract previously existed. How do we renegotiate this contract?…Moves and counter-moves will only make sense if one party has something that is vital to the other and can force the latter to respond to the actions of the former. In this case we have a product that the world wants but does not need. Any moves by our negotiators can be easily ignored. Consequently, it makes no sense to renegotiate a contract from a position of weakness…We do not own the wells, we do not have the skills necessary to exploit them and we do not have the technology to provide the value-added products. In fact, truth be told, at this stage we are struggling to meet Local Content requirements. One cannot renegotiate a contract from a position of future possibilities, but must do so within the current context. So any conversations of renegotiation will take place from a position of weakness rather than one of strength,” Lucas declared.
Article adapted from: https://www.stabroeknews.com/2018/business/03/23/head-of-ugs-school-of-business-not-sanguine-about-up-front-cash-from-oil-and-gas-industry/
The Oil Contract Debate
By Dr Leyland M. Lucas
In the late 1990s, Guyana signed an Oil and Gas exploration agreement with Exxon’s subsidiary, EEPGL. That agreement not only permitted significant activity by Exxon, but also provided Guyana with a small subsumed royalty of no more than 1%. The agreement was also in clear contravention of Guyana’s laws, which stipulated the number of blocks that could be offered to a single entity. Though there were clear violations in law, Guyana has chosen to honour that obligation rather than raise it in other forums or attempt to invalidate it. As a nation, our word has been our bond.
Fast forward to our current situation where we find much being discussed regarding the current contract, and whether or not the nation’s best interests have been considered. In fact, in the past few months, we have been privy to an ongoing debate around the contracts signed by the Government of Guyana and Exxon. This debate has gotten so intense that some have even questioned the integrity and negotiating ability of governments in other developing countries, where the exploration of oil and gas is ongoing. Yes, in the case of Guyana, there is a great deal of evidence to suggest that better could have been done. But, who are we to question the outcome, when we were absent from the process? As my grandmother would often say when a family member chose to criticize others ‘make sure that your house is clean before telling someone else that theirs is dirty.’
In an earlier article on local content, I made the point that oil is no longer a critical commodity. There is an abundance of oil in the global market, prices are highly volatile, and the world has begun a gradual process of shifting from fossil fuels to renewable sources of energy. These are realities that cannot be ignored. For example, within our hemisphere, we see significant declines in oil and gas production, yet very little evidence of a major impact in the global marketplace. Likewise, the Kingdom of Saudi Arabia, a major oil producer with one-fifths of the world’s reserves, has also begun the process of delinking its economy from oil-dependency and looking for newer ways to stimulate growth and development. The Kingdom of Saudi Arabia has determined that, given the volatile prices, oil revenue can no longer be the foundation of economic development. Instead, the Kingdom has shifted towards renewable energy sources and undertaken significant activities towards transforming the foundation upon which the future economy will stand. Guyana, as a country, has also committed itself to a policy of sustainable development and, in so doing, must balance issues of production and protection. Afterall, we exist in a very fragile ecosystem.
Having made these observations, I’d like to proceed with a small contribution to this debate. As one of my former bosses, Mr. Clarence Ellis, would say ‘no matter what the situation, if you are seen to be truthful, reliable, and honest in your dealings, people will work with you.’ Therefore, my contribution to this debate for the most part will center on the words reputation and position. These words should be at the heart of any conversation about contracts and the subject of renegotiation. I hope that the importance of these words will be reflected and help to either advance or bring some closure to the debate.
The Oil Contract
To some extent, what we are dealing with here is a Prisoner’s Dilemma. In a simple tit-for-tat version, players attempt to match/better one another’s moves, with the hope that the victor will emerge with the Lion’s share. However, research has shown that such strategies seldom succeed. Eventually, parties come to recognize that continuous moves and countermoves are less productive, and that mutual cooperation works best. In essence, let’s find a middle ground rather than try to be the ultimate winner. This is an important point in the ongoing debate around the Exxon contract, because continuous negotiations and renegotiations will yield no fruitful results. Hence, the situation becomes one of finding an acceptable position of compromise, from which both parties can gain some benefit and continue to operate with mutual respect.
As we focus on the current contract, one cannot ignore the fact that a contract previously existed. How do we renegotiate this contract? Within a Prisoner’s Dilemma framework, moves and countermoves will only make sense if one party has something that is vital to the other and can force the latter to respond to the actions of the former. In this case, we have a product that the world wants but does not need. Any moves by our negotiators could be easily ignored. Consequently, it makes no sense to engage in efforts to renegotiate a contract from a position of weakness.
Moves and countermoves also influence one’s position. Subsequent moves by a party only makes sense if this is being done from a position of relative strength. Hence, I pose the question ‘What is our strength?’ The simple answer to this question is nothing. We do not own the wells, we do not have the skills necessary to exploit them, and we do not have the technology to provide the value-added products. In fact, truth be told, at this stage we are struggling to meet Local Content requirements. One cannot renegotiate a contract from a position of future possibilities, but must do so within the current context. So, any conversations of renegotiation will take place from a position of weakness rather than one of strength.
This brings us to the issue of reputation. What does it say about a country that signs an agreement and then seeks to change it? Over time, governments and countries develop reputations as either reliable or unreliable bargaining partners. Each reputation comes with costs and benefits. If Guyana develops a reputation for being an unreliable partner, then all options for future development are lost. As a nation and as a government, we must realize that our word is our bond. If we cannot be relied upon to honour our obligations, then there is no place in the world of nations for us.
Recently, some have suggested to me that we can do this on our own. As I listened to these suggestions, I sensed subtle tones of nationalism and nationalization. While such suggestions are laudable, one must admit ‘that boat has sailed.’ Guyana and the rest of the developing world are full of examples of the consequences of nationalization, in the absence of an appropriate skill set. While it served its political purpose, the benefits of so doing left much to be desired. Oil, like sugar and bauxite, are primary products with volatile prices and much of the value-added downstream.
Product Quality
One of the issues that has been raised in this oil contract debate surrounds the product quality. Yes, there is a great deal of literature that suggests the crude is of an exceptionally high quality. Like an exceptionally well-tailored suit, superior quality commands a high price, provided that a market exists. Hence, one must ask the question ‘can quality command a high price in a saturated market?’ The simple answer to this question is no. As we know, primary product prices fluctuate quite significantly. So, a high price today might hit rock bottom tomorrow. For those of us old enough to recall, Guyana sold its sugar at a high price on the world market in the 1970s rather than honour its obligations to existing contracts. Not too long after, the bottom fell out of the world market. As a nation, we were profitable in the short-term, but suffered in the long-term, particularly with respect to our reputation.
Moreover, the wells are not owned by the Government of Guyana. They are owned by Exxon and its partners. How do we exact additional tribute from these companies simply because we have a product of exceptional quality, when the owner opts to not sell it? Guyana cannot force Exxon and its partners to pay a higher premium when they can choose to not pump oil and gas from the wells. Not doing so provides the government and people of Guyana with zero revenue. Hence the need to be cautious in one’s approach to renegotiating of contracts.
Placing this issue of quality into the Prisoner’s Dilemma framework, how do two players arrive at a mutually beneficial position, when one player ceases to participate? More specifically, how does one arrive at mutually beneficial positions when the dominant player withdraws? The fact is, under these circumstances, the game ends and there are no winners. It’s like that childhood experience where the owner of the ball runs home with it because he is unhappy with some decision. What we have left is a group of disgruntled children who grumble and look for something else to do. Unfortunately, Guyana has very few options and even fewer resources that can be summoned into action.
Front-Loading
An interesting argument has recently been raised that Guyana would be better off receiving a sizeable up-front bonus, rather than waiting for later disbursements through royalties. While those numbers vary from the well-reasoned to the pie-in-the-sky estimates, one needs to look at the domestic reality. We are a nation with various needs from education to infrastructure. To address those needs, we will require a significant influx of financial resources. However, if that influx is not regulated, it will cause significant inflationary pressures. Such pressures will further damage the economy and leads to a significant decline in living standards. With a massive influx of cash, one does not speedily correct the errors of the previous decades. Engineers, scientists, agricultural experts, and doctors are not created overnight. It takes years of training to acquire these skills. If the nation is to acquire these skills, then it must be done over time. Let’s not forget that we are dealing with a product whose price is highly volatile. Where will the resources come from when an engineer needs specialized training in 5 years, but the bottom has fallen out of the oil sector? Yes, this may happen anyway. But, at least we would not recreate the conditions for another massive brain drain, as was experienced in the 1980s when resources for scholarship recipients were scarce.
Let me use a simple example to further elaborate on this point. Think of someone in the desert with no food or water for an extended period of time. He/she is rescued and immediately placed in front of a large quantity of food and drink. If that person consumes everything without control, then he/she dies. How-ever, if he/she consumes in moderation, until the body is once more accustomed to consuming solids etc, then there is a greater likelihood of survival. The point I am making here is that a massive unregulated inflow of cash through a significant bonus may entice policymakers to undertake massive investment projects, which the economy cannot embrace with its limited skills inventory. Instead, a gradual inflow and expenditure might prove more beneficial to the nation in the long-run. So, while front-loading of contracts and securing large bonuses might be politically popular, it may prove to be economically disastrous.
Book Value
In some circles, it has been suggested that Guyana deserves a larger bonus because of its contribution to Exxon’s bottom line. At least one commentator has made the point that, since the discovery of oil and gas deposits off the shores of Guyana, Exxon’s book value has increased significantly. In my humble opinion, to use book value as a basis for renegotiating a contract is not a sound position. Book values change on a daily basis. In fact, Exxon’s stock price like so many others in the market has been on a rollercoaster ride. One year ago, its common stock price was $82.83; today, it is $76.27; last month, the stock price reached a high of $89.07. Which stock price should we use as the basis for asserting book value and renegotiating this contract? Should both parties make offers and counteroffers? Following a pattern within a Prisoner’s Dilemma game, such uncertainty cannot be tolerated. Instead of embracing such uncertainty, both players will be forced to arrive at a mutually beneficial point. Moreover, how reliable a negotiating partner is a government when its position appears to change with every market fluctuation? Clearly, other nations and firms will not take us seriously, since stability is essential to the capitalist system of trade and exchange.
Geopolitics
Over the past decade, commentators have noted a change in global relations. That change has seen a decline in nation states and the rise of the corporate state. That corporate state takes the form of transnational corporations, which have been able to influence global politics through their actions. For instance, in the US, we see massive amounts of money being poured into political campaigns by individuals and companies such as the Koch Brothers, George Soros, and the professionals on K Street. Why is this important within the Guyana context? The emergence of corporate states is important because they have the ability to alter things within a nation and change the balance of power. As stated by former British Prime Minister Lord Palmerston, and later expressed by Henry Kissinger, ‘friends and enemies are not permanent, but interests are.’ In this case, the interests are Oil and Gas.
Understanding the permanence of interests is important within the context we are examining. Although there may seem to be a disagreement between Venezuela and the US, any perceived reluctance on our part to abide by negotiated agreements could significantly alter the regional balance. If Exxon or any other transnational deems it favourable to reengage with the Venezuelan government, then they will do so. A reliable bargaining partner is always better than an unreliable one. Who then will take up the mantle on our behalf if Venezuela flexes its military might against us? Are we to expect support from the US administration when we have acted against the interests of an American corporate giant? I think that an examination of history would reveal that the answers to these questions are not favorable.
Conclusions
Oil and gas have been found and they have the potential to offer a great deal of wealth to our beloved Guyana, if appropriately managed. This is already reflected in the International Monetary Fund (IMF) reports suggesting a change in our economic classification. Although we may argue about the royalty and signing bonus, it is merely an exercise in futility. We are in a Prisoner’s Dilemma, having originally negotiated a very bad deal. As a bargaining partner, one does not change the rules of the game unless one comes from a position of strength. Unfortunately, such strength does not exist in our case. We have a product that the world wants, but does not need; We lack the skills base and infrastructure to pursue this venture on our own; There is a global shift away from oil and gas towards renewable and sustainable sources of energy. As such, we are approaching all such negotiations from a position of relative weakness rather than strength.
As a nation, there is an expectation that we will honor our word. Our word is our bond and, as such, we must strive to establish and maintain a good reputation. Even within a Prisoner’s Dilemma framework, some reliability is expected. If a move is made, that player is expected to honour the consequences of that move, rather than default. When countries default on their obligations, their ability to reengage with other parties is seriously hampered. Particularly as a small and young country, we must strive to uphold a positive reputation, irrespective of the consequences. Good reputations are hard to come by, can be easily lost, and extremely difficult to regain. Let us focus on playing the hand we have been dealt, rather than continually questioning its validity. Maybe, for future generations, there is a lesson to be drawn from this experience. A nation should always focus on establishing high educational standards and building its skills base, lest it be found wanting.
Article adapted from: https://www.stabroeknews.com/2018/business/03/23/the-oil-contract-debate/
Bigger investments in Guyana highest learning institution needed - VC
The University of Guyana (UG) is appealing for bigger investments in order to effectively ‘prepare thousands of Guyanese’ for the country’s emerging Oil and Gas (O&G) sector.
So says the institution’s Vice Chancellor, Professor Ivelaw Griffith, who this past week lamented the state of affairs, as he appealed to the corporate community, including oil companies, civil society and government for increased investments in the tertiary institution.
“I want to recommend that you embrace the proposition that we have a University of Guyana that we are going to have to invest in appropriately; we being the society, we being the partners at the international level, who think, who are convinced that this is a worthy journey on which to enjoin,” Professor Griffith said.
The University Administrator was at the time addressing the Guyana International Petroleum Exhibition and Summit (GIPEX) held at the Marriott Hotel from February 7 to 9.
He was speaking to the institution’s preparations, in order to meet the projected skills demand as a result of the emerging industry and was adamant the University is not going to be able to “make the efforts and have the outcomes (desired), if we don’t want to invest.”
Investment, he proffered, “needs to come from the government of Guyana, it needs to come from the industry partners, it needs to come from the citizenry.”
Energy Investment Plan
He told the industry executives, delegates and government representatives at GIPEX 2018, “in context of (UG) just sitting there, we got to figure out what the investment will be to make these all happen.”
The University currently has a team working on putting together an energy investment plan and a number of industry partners have already begun collaborating with the University, he said.
Professor Griffith identified Schlumberger, Haliburton, BakerHughes (a GE Company), ExxonMobil, and TechnipFMC – having already employed 10 University Graduates.
The University Vice Chancellor disclosed too that TechnipFMC has committed to directly employing from UG 20 more specialized persons by year-end.
That ExxonMobil Tier I contractor last year contacted the University to recruit the engineers—six mechanical, two electrical and two civil engineers.
Each of the contracted University graduates has since been sent to Brazil by TechnipFMC for further training.
Article adapted from: http://oilnow.gy/news/bigger-investments-guyana-highest-learning-institution-needed-vc/
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