International Monetary Fund (IMF) Mission Chief to Guyana, Dr. Arnold McIntyre, says there is nothing unusual about the Production Sharing Agreement (PSA) which the country has with ExxonMobil for the Stabroek Block, where more than 6 billion barrels of oil equivalent have so far been found.
The PSA stipulates a 2 percent royalty and 50 percent split in profit oil for development of the multi-billion-barrel resources offshore the South American country, which prior to the 2015 Liza discovery made by ExxonMobil, had no known oil resources.
“The Production Sharing Agreement Guyana has is not atypical. It is quite consistent with what other countries have,” Dr. McIntyre said on a recent podcast.
He said it is not unusual for oil companies to take the initial risk by investing large sums of money in exploration and then recover this cost once a commercially viable discovery is made that moves to development. In instances where no commercial discovery is made, the oil companies forfeit the cost.
ExxonMobil has expended around US$460M between 1999 and 2015 on a range of activities and interventions which led to the world-class Liza discovery, set to propel Guyana towards becoming a significant oil producer in the region. The company has said that approximately $230M was spent drilling the Liza 1 well and early drill costs for the follow-on wells. Another US$65M was spent utilizing Geology and Geoscience experts and engineering teams to identify and then design the drilling campaign. Approximately US$25M went towards other costs and overheads, including rentals and training payments while around US$140M was spent on several seismic surveys, the biggest being the 17,000 sq. km exercise in 2015 over the Stabroek Block.
Dr. McIntyre said during the cost recovery phase Guyana will get around 14.5 percent in revenue. During this period, ExxonMobil is permitted to recoup a maximum of 75 percent of its initial investment, from the oil being produced.
“The distribution is about 14.5 percent in the period of investment recovery which is about seven years and after that it becomes far more…and therefore Guyana’s share of the oil…goes up quite substantially. So, I would say there is nothing atypical here,” he pointed out.
UK-based Wood Mackenzie and Norwegian headquartered research company Rystad Energy have said the ExxonMobil PSA is in line with frontier countries around the world.
The IMF Mission Chief said while some countries have a little bit more in terms of the share in the investment recovery period, some also have a little bit less, “but the important thing is the share that Guyana gets of the oil revenues after the initial investment phase, goes up quite substantially, then the returns to the country are quite significant.”
He said the focus for Guyana now has to be on ensuring that the returns it is going to get, “which are very substantial” are used to raise living standards.