Latest update April 25th, 2024 12:59 AM
Mar 04, 2018 News
– Guyana settles for 2% on 500,000 barrels per day
By Kiana Wilburg
Governments use various means to collect upfront payments from operators who extract a country’s resources. Royalty is one of them.
Royalties are attractive to governments as the revenue is received as soon as production commences. They also ensure that companies make a minimum payment for the minerals extracted.
But many experienced governments understand that oil can be volatile. Today, an oil company can produce 5000 Barrels of Oil Per Day (BOPD). Another oil find can push that production to 8000 BOPD.
It is for this and other reasons that countries like Uganda set out specific circumstances under which its royalty should increase. Its contract with Tullow Oil is an apt example.
According to the agreement between the two, where the production does not exceed 2,500 BOPD, the nation’s royalty would be five percent.
Where the production is higher than 2,500 but does not exceed 5,000 BOPD, Uganda would be entitled to a 7.5 percent royalty.
If production is higher than 5,000 but does not exceed 7,500 BOPD then Uganda would receive 10 percent royalty. But should the production exceed 7,500 then the royalty goes up to 12.5 percent.
Guyana’s contract presents an entirely different ball game. The Coalition Government was able to increase the royalty it received from ExxonMobil. Instead of one, it is now a meager two percent. The APNU+AFC Parties have engaged in much self-praise since that increase.
Also of significance, is the fact that the two percent royalty was agreed on when ExxonMobil had announced a forecast of 120,000 barrels of oil per day when production kicks off in 2020.
With its Pacora-1 Exploration well, the American oil giant recently stated that Guyana could now expect 500,000 barrels of oil per day.
There has been no talk or even the slightest interest from Government or ExxonMobil to have the royalty increased since this drastic change in production figures.
EXXONMOBIL OPPOSED
A technical brief that was prepared by Commissioner General of the Guyana Geology and Mines Commission (GGMC), Newell Dennison, confirms that ExxonMobil is not open to Guyana securing a higher royalty.
Dennison’s report was based on a meeting that occurred in April 2016.
In his brief, Dennison said it was put on the table that there were some fiscal reviews being done and while they would not be concluded before finalising the new agreement and licence (which were both signed in June 2016), it would be necessary to include certain principles.
The GGMC Commissioner General said, “A provision for a royalty in a contemplated hybrid PSA (Production Sharing Agreement) was mentioned and in the context of ensuring that Guyana is not at a disadvantage in a high oil price environment in the future. Esso (ExxonMobil) was not at all receptive to that, however, it was left on the table.”
He added in the document that, “I have the view that there may be a fair chance to model some notional improved royalty to kick in, but I also speculate that in the environment of deep water, deep target development, the price of oil would have to go up significantly before the departure of the financials that prevail now and what could materialize becomes of material consequence.” (The entire brief can be seen by following this link: file:///C:/Users/k.wilburg/Downloads/GGMC%20Brief%20on%20Esso%20April%2015%202016.pdf).
Minister of Natural Resources, Raphael Trotman, had said that Dennison and other GGMC officials were the lead negotiators for Guyana when the ExxonMobil contract was being tweaked in 2016. Dennison’s suggestion, however well intentioned, apparently was ignored, since no such provision made it into the modified contract.
Jagdeo giving Exxon 102 cent to collect 2 cent.
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