Jan 25, 2020 News
By Kiana Wilburg
Upon the request of the Minister of Finance, Winston Jordan, the International Monetary Fund (IMF) was invited last year to advise on what reforms would be needed for the fiscal regime of the petroleum sector.
Following this, the IMF visiting team provided a number of recommendations, a key one being that a reasonable, minimum share for the government should be between 15 and 20 percent.
The international organisation which aims to promote global economic growth and financial stability said that Guyana can achieve a 15 to 20 percent take from a combination of royalty and a monthly limit on cost recovery (with excess costs carried forward).
Given the terms of the Guyana-ExxonMobil contract, the cost recovery limit is 75 percent. This means that the contractor is allowed to recover 75 percent of his expenses from annual oil production earnings. The 25 percent that remains is called profit oil. According to the agreement, this shall be shared 50/50.
Guyana therefore receives of 12.5 percent of the total production. When the two percent royalty is added, Government gets 14.5 percent of the production. The Fund has therefore recommended that going forward, Guyana should increase its take.
Energy Department Head, Dr. Mark Bynoe, has said on several occasions that he is desirous of increasing the Government’s take from its oil resources. Not only does he want an increased royalty for future contracts, but more profit oil too.
In the eyes of Fitch Solutions, an industry-leading provider of macro intelligence data, Guyana’s two percent royalty in the ExxonMobil deal for the Stabroek Block is quite low especially when it is compared to other countries in the region like Brazil and Mexico.
The industry analyst noted that for the two nations identified, the minimum base royalty rate for deepwater acreage is 10% and 7.5%.
In fact, the company believes that even a doubling of the current rate will not discourage oil producers, especially after the recent oil discoveries.
At present, Guyana’s arrangement with ExxonMobil sees the country receiving a mere two percent royalty and 50 percent of the profit oil from the Stabroek Block. Importantly, Guyana has agreed to pay Exxon’s taxes out of its share of the profit oil. This simply means that Guyana is accepting way less than 50 percent of the profit oil.
And while there have been numerous calls for Guyana to get a fair deal, ExxonMobil has remained adamant about not returning to the table for the renegotiation of these and other terms.
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