Incentive: Storage tanks inside the Exxon Mobil Baton Rouge Refinery in Louisiana, US. The government of Guyana says it will honour the terms of its deal with Exxon. Picture: REUTERS
Incentive: Storage tanks inside the Exxon Mobil Baton Rouge Refinery in Louisiana, US. The government of Guyana says it will honour the terms of its deal with Exxon. Picture: REUTERS

Houston — Exxon Mobil received such a "favourable" deal from Guyana, home to the biggest new deepwater oil play, that the tiny South American country should rewrite its tax laws, the IMF has said.

While Guyana should honour the deal, future contracts should ensure the state gets a higher portion of crude proceeds, the fund said in a report.

The country, South America’s third-poorest with an average per capita income of about $4,000, has little experience of dealing with multinational behemoths such as Exxon.

Terms of the 2016 contract "are relatively favourable to investors by international standards", the IMF said. "Existing production-sharing agreements appear to enjoy royalty rates well below what is observed internationally," it said.

IMF officials have visited the nation often over the past nine months as they help improve its legal, fiscal and regulatory frameworks before Exxon commences oil production in 2020.

Key global projects

Guyana has become one of Exxon’s five key global projects for the next decade due to the sheer size of its oil endowment.

"Government take is generally lower in frontier plays than in established areas as governments need to incentivise companies to undertake high-risk exploration," Exxon said, citing a Wood Mackenzie study that found Guyana in the middle range of jurisdictions evaluated.

With companies such as Total, Tullow Oil and Repsol also exploring for oil in Guyana’s waters, time is of the essence.

"The government could consider issuing a temporary moratorium on new licensing until a new fiscal regime is in place," the IMF said.

Exxon’s total area in Guyanese waters covers 4.65-million hectares, equivalent to about 2,000 leases in the US sector of the Gulf of Mexico.

Exxon leads a partnership group that includes Hess and China’s Cnooc.

Expectations are high. Government revenues from Exxon’s first project, which involves pumping less than 15% of the crude found to date, are expected to peak at $700m a year by the late 2020s, equivalent to the country’s tax take in 2016.

The government has no plans to change the Exxon contract, Mineral Resources Minister Raphael Trotman said.

The terms cover the Stabroek Block, where Exxon struck oil through its Liza-1 well in 2015. The government would have different terms for future contracts, Trotman said.

Exxon’s deal was procured partly because it entered the country in 1999, when the Guyanese coastline was not regarded as promising oil territory by most of the industry.

"It is not unusual to see more favourable fiscal terms for early investments in the extractive industries," the IMF said.

With first oil due in 2020, the government has much to do, the IMF said. Exxon’s deal with Guyana gave it the lowest average effective tax rate among nine projects in countries that include Norway, Brazil, Peru and Trinidad and Tobago.

Open Oil, a Berlin-based company that advocates contract transparency, also found Guyana’s share of the Stabroek was low compared with established and early-stage producing countries. Guyana will receive 52% of positive cash flow over the life of Exxon’s initial project, compared with 63%-72% for developments in Liberia, Mauritania, Ghana, Senegal and Papua New Guinea, it said in March.

Bloomberg