Jun 10, 2023 News
Kaieteur News – While ExxonMobil Guyana and its partners Hess Corporation and CNOOC, continue to enjoy tax-free profits in Guyana – the United Kingdom Government has decided that the energy profits levy that it introduced last year, which puts a marginal tax rate of 75% on North Sea oil and gas production, will remain in place for the next five years while oil and gas prices remain higher than historic norms.
However, it was explained that the rate will fall back to 40% when prices consistently return to normal levels for a sustained period.
Kaieteur News had reported that the Russia-Ukraine war has sent oil prices soaring and triggering a cost of living crisis in many countries, including Britain. Amid the war, oil and gas companies have been seeing record-shattering profits and as such, many governments have introduced a windfall tax on the big profits to alleviate the cost-of-living crisis and balance their economy.
The UK Government explained that the levy was put in place to tax extraordinary profits made by industry following record high prices of oil and gas driven by Putin’s invasion of Ukraine, the levy has raised around £2.8 billion (US$3.5 billion) to date, since the introduction last year and is expected to raise almost £26 billion by March 2028 – helping to fund the measures to help with the cost of living, such as the Energy Price Guarantee.
While the levy included an investment allowance to encourage firms to continue to invest in oil and gas extraction in the UK, industry has warned that companies are cutting back on investment. This puts the long-term future of the UK’s domestic supply at risk, meaning we would be forced to import more from abroad at a time when reliable and affordable energy is a focus for families and businesses.
In response to this, the Government on Friday announced an Energy Security Investment Mechanism to give the oil and gas sector certainty to raise capital and invest in new and existing projects, securing affordable and reliable domestic energy supply and protecting some of the 215,000 British jobs the sector supports.
The UK government said it is taking concrete steps to accelerate home-grown sources of energy to reduce the UK’s reliance on foreign imports.
Gareth Davies MP, Exchequer Secretary to the Treasury, said: “It is right that we recover excess profits resulting from Putin’s war and use the money to help people with their energy bills. Thanks to the revenue raised from windfall taxes on energy profits, we will have helped save the typical household £1,500 on their energy bill by July.”
Yesterday, the Government also published the terms of reference for the oil and gas fiscal regime review that was announced at the Autumn Statement. The review will focus on how the tax regime can support the country’s energy security and our net-zero commitments, while ensuring the country retains a fair return in exchange for the use of its resources when responding to any future price shocks.
On the local front, Guyana has found itself in a conundrum where it is foregoing more than it earns. Exxon’s affiliate Esso Exploration and Production Guyana Ltd (EEPGL), is the operator of the country’s richest oil block (Stabroek Block) and continues to enjoy tax-free earnings owing to the Production Sharing Agreement (PSA) Guyana signed onto with the oil major.
According to the 2016 PSA, Guyana has agreed to, under the taxation provisions, to pay ExxonMobil’s share of Corporation and Income Tax. As such it would mean, that Guyana foregoes each year, billions of US dollars. On top of this, documentation to this effect is then provided to the US based company allowing it to not have to pay any taxes in its home country for its earnings overseas.
Guyana’s Stabroek Block is 6.6 million acres (26,800 square kilometers) and has approximately 11 billion proven barrels of oil. EEPGL holds 45 percent interest in the Block. Hess Guyana Exploration Ltd. holds 30 percent interest, and CNOOC Petroleum Guyana Limited holds 25 percent interest.
For the third-quarter of 2022, Exxon announced that its overall earnings was a record-shattering US$19.7 billion – whereas Hess reported that it earned a net income of US$515 million and CNOOC recording US$5.1 billion.
Recently, Kaieteur News reported that Exxon and its partners made a handsome profit from the Stabroek Block last year totalling GYD$1.23 trillion (US$5.9B), untaxed. This is more than double what Guyana has received since the creation of its Natural Resource Fund in 2020. As of April, Guyana has received some US$2.4B in profit oil and royalty from the Stabroek Block operations.
According to the 2022 financials for Exxon’s subsidiary and operator for the block, Esso Exploration and Production Guyana Limited (EEPGL), it earned $577.7B in profits, a substantial increase over its 2021 earnings totalling $132B. Hess Corporation’s 2022 profit was listed as $322.7B while CNOOC was $329.8B.
Even though the contract Guyana signed onto with ExxonMobil is lopsided, the deal remains untouched as the government continues to approve more of Exxon’s US-multi billion project in the Stabroek Block.
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