You found out that your backyard has gold. Someone comes along and tells you he can dig up your gold. So you sign a contract with him that stipulates you are only entitled to 10 percent of your own gold. The gold digger finds 10,000 bars of gold, therefore according to the provisions of the contract, you can only get 1,000 bars of gold while the contractor gets 9000 bars.
That illustration was used by Chartered Accountant, Nigel Hinds, as he explained the situation that Guyana has found itself in, following the signing of the 2016 Production Sharing Agreement (PSA).
The Accountant thinks that the contract is the worst Guyana could have gotten. He opined that only a visionless individual could have signed such a contract on Guyana’s behalf. However, Hinds said that of all the “insulting” provisions in the agreement, the two percent is about the worst.
Because of the magnitude of the find, Hinds articulated that it is almost impossible for Guyana to end up totally broke unless there is gross mismanagement coupled with the incompetence that was displayed with the signing of the contract.
He said, “We would have been much better off with a good contract but we would still do well as is because of the value of the find and the probability that the find will quadruple. But the point is we are not going to be getting what we deserve.”
Hinds said that with the discovered wealth, Guyana could have become a country where the citizens enjoy a standard of living comparable with that enjoyed by those living in the first world countries. “We could have become the Kuwait of the Caribbean.”
Hinds said that royalty is the best way to secure the wealth. “They cannot fudge the royalty. Well I shouldn’t say they cannot fudge it because these oil companies are masters of the game. But it is hard to fudge royalty because it is off the top. If we could have just gotten a five percent royalty at minimum, we would have been much better off.”
Hinds said that in his research, he came across the average royalty rate ranging from five to 15, “even if you put us at lowest, five percent, we would have been better off.”
Hinds said that with a higher royalty, even with all the other horrible provisions in the contract, Guyana would have gotten a better share.
He noted that there is an intention to produce approximately 120,000 barrels of oil per day. Hinds said that the current market price for oil is US$65 per barrel. He said that if the projected production figure (120,000 barrels per day) is multiplied by the intended price for barrel which is US$65 and is further multiplied by 360 days per year (giving five days) then the yearly revenue will be about US$2.8B.
Guyana’s two percent share of that will be US$56M. “Now if the royalty was five percent, which is the minimum we should have ever accepted, our share on royalty alone would have been US$140M. That is transformative; this one year money can carry GuySuCo for 28 months. It can do so many things and this is just limited to the find so far.”
Hinds noted that ExxonMobil has made six discoveries offshore Guyana and associated recoverable reserves are now up to 3.2 billion barrels. He said, “Imagine if that find quadruples, look how much Guyana will lose.”
Hinds said that the top oil producing countries in the world are generally the richest countries. He created a chart that considered the find and the country’s population and said that puts Guyana among the top oil rich countries in the world. “Guyana falls at eight so we can see ourselves as one of the countries that should have the highest standard of living by post 2020.”
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