VP Jagdeo unsure if ExxonMobil is recovering 2% royalty in expenses

Jun 04, 2023 News

Kaieteur News – Esso Exploration and Production Guyana Limited (EEPGL) – ExxonMobil Guyana- in its financial statements for the year ending December 2022 listed the two percent royalty it is paying to Guyana as a company expense to develop the resources in the Stabroek Block.

Vice President Bharrat Jagdeo

Under the 2016 Production Sharing Agreement (PSA), expenses that are part of production activities can be recovered or claimed back by the operator.

Last year, after constant back and forth, the government declared that ExxonMobil is not recovering the meager two percent royalty it is paying to the country.

In its most recent financials however, the oil giant slipped in royalty as an expense part of its activities. It said for the year 2022, it paid a total of $18,892,021,213 to Guyana- approximately US$94.5 million in royalty.

Notably, taxes, which are not paid by the contractor were also listed as an expense. While ExxonMobil was careful to include a note in its financials to make it definitive that its taxes are not being paid by the company, but rather by the government.

It stated “Under Article 15.2 of the Petroleum Agreement, the Company is subject to the Income Tax Laws of Guyana with respect to filing returns, assessment of tax, and keeping of records. Under Article 15.4 of the Petroleum Agreement, the sum equivalent to the tax assessed on (the) Company will be paid by the Minister responsible for Petroleum to the Commissioner General, Guyana Revenue Authority and is reported as non-customer revenue.”

The same diligence was however not extended to the royalties being paid to Guyana. ExxonMobil did not bother to clarify in its financial statement at any point whether this cost is being recovered.

Efforts to clarify same with the nation’s chief spokesperson on petroleum, Vice President Bharrat Jagdeo were in vain on Thursday during his weekly press conference at Freedom House.

Jagdeo was informed that the company’s financials listed the two percent royalty as a cost involved in the petroleum production activities and was specifically asked whether the funds were being recovered.

In response, the VP said, “Royalty, I think the GRA [Guyana Revenue Authority] has made that clear. Has it not? Has GRA not made that clear? I will look at it.”

He continued, “If they have it as recoverable then it’s wrong. It’s not recoverable.”

The former Head of State went on to explain that financial statements often require such information to be presented for accounting purposes and advised this newspaper to speak with a trained accountant on the matter.

He was asked to say what measures Guyana is taking to ensure the oil company is not recovering the two percent royalty being paid every quarter, when he said, “No, no, it is not (recoverable), as far as we’re concerned it is not recovered but look at whether in the financials based on the conventions its required.”

Kaieteur News had reported that the PSA is silent on whether royalty was a recoverable expense. It was later revealed that the former A Partnership for National Unity + Alliance For Change (APNU+AFC) government had renegotiated the deal to prevent the oil company from recovering the royalties being paid to the country.

According to Addendum No. 1 to the Petroleum Agreement dated April 26, 2019, it was evident that the named parties were in agreement that the contract allowed for the two percent royalty to be recovered. To plug this loophole, the Addendum that was subsequently filed with the Deeds Registry categorically stated that it shall not be recovered in any way.

Sealing the new arrangement were former President, David Granger and President of Exxon affiliate, Esso Exploration and Production Guyana Limited (EEPGL) Rodney D. Henson. Affixing their signatures as witnesses were former Head of the Energy Department, Dr. Mark Bynoe and the country’s Petroleum Advisor at the time, Matthew Wilks.

This therefore means that royalty should not be recovered and should also be adequately reflected in like manner by the contractor in its financial statements; failure on its part to do so has again left the nation to ponder whether the meager two percent royalty payment is being recovered as an operational expense.

• expense, oil, PSA, recover, royalty