Guyanese will have to settle for a salt and rice dinner while the oil companies enjoy a four-course meal, compliments of the US$ 55B which Guyana left on the negotiating table. It is no wonder that Global Witness titled its report “Signed Away” because this is exactly what Guyana has done. It has signed away the peoples’ birthright.
The US$55B is conservative. It is based on an average oil price of US$65 per barrel.
Oil prices we have been known to have risen above US140 per barrel. In 1998, the average price was US$ 11.91 per barrel. Ten years later, in June of 2008, oil prices peaked at US$146.91 per barrel.
The price of US$65 per barrel is therefore a fair price from which to base calculations as to what Guyana would have obtained had the country negotiated better terms, such as a 10% royalty and a 25% taxes on profits.
OpenOil has calculated that based on an average price of US$65 per barrel, the country has robbed itself of US$55B because of the terms it negotiated. But this is at the lower end of the simulations because as the price of oil rises, the amount which Guyana would have given up also increases.
If the price of oil rises to an average of US$80 per barrel – not at all an unrealistic development given what is happening to shale production at the moment – then Guyana would have given up some US$73B. Even if the price of oil falls to an average of US$50 per barrel, it is estimated that Guyana would have denied itself US$ 38 B in revenues.
This is not make-believe money. This is money which could make every Guyanese comfortable for the rest of his or her life. It is also not the case that because Guyana gave up such a humongous sum, that no one benefits. This US$55B will go into the pockets of the oil companies and their stockholders.
Guyana is already saddled significant pre-contract costs along with field development costs which totaled more than US$ 1B even before a drop of oil was pumped.
OpenOil calculates exploration costs at US$0.94 per barrel. Capital expenditure works out to US$ 11.58 per barrel. Operating expenditure works out to US$ 10.98 per barrel. The total costs per barrel works out to US$23.50, excluding financing costs.
Exxon and one government spokesperson have tried to justify the low royalties and overtly generous concessions on the grounds that Exxon was taking a risk given that oil had not been found in Guyana prior to 2015. As the report noted, however, the discoveries in 2016 alone effectively de-risked the Stabroek Block.
OpenOil calculates that the oil companies will obtain an internal rate of return of 22%-27% on their investment. By industry standards, this is extremely healthy. Were Guyana to renegotiate a 10% royalty, the rate of return to the oil companies would still be a healthy 18%-23%. Therefore, the oil companies can afford to return to the negotiating table and give Guyana a better deal.
Global Witness has called for the Guyanese government to renegotiate the oil contract. It is a call which every single Guyanese should echo.
It has also called for the Guyanese government to investigate the process by which the Stabroek license was negotiated. It is not expected that this is going to happen under the present government because it will open a “can of worms”.
Global Witness has also called on the US State Department to support Guyana by encouraging Exxon to renegotiate the Stabroek contract. The corruption watchdog organization feels that the US government should force Exxon back to the negotiating table.
Global Witness believes that Guyana can negotiate a better deal. It feels this is possible given how important the production license is to the company’s future. In other words, Guyana has some leverage to force Exxon to the negotiating table.
The present deal is unacceptable. No self-respecting people should accept such a deal. It makes a mockery of the term “negotiations.”
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