Friday, December 2, 2022

Guyana’s oil take will increase over time, says former business minister

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Dominic Gaskin, who served as Guyana’s Minister of Business under the previous administration, says Guyana’s take from oil production activities at the Stabroek Block will increase in the future.

Mr. Gaskin made this comment in a letter published in the local press. He said, “… Guyana’s take will increase beyond 14.5% of total revenue at some point in the future.”

This 14.5% take is a combination of 12.5% which accounts for Guyana’s share of the profits after the contractor’s costs are recovered up to a 75% ceiling, and a 2% royalty paid to the government, from the contractor’s profit share. ExxonMobil is the operator of the Stabroek Block. Hess and CNOOC are the other two co-venturers.

The former minister posited his view by reasoning that at some juncture, ExxonMobil will have substantially recovered the investments it has made across the various phases of development of the Stabroek Block fields, resulting in a reduction of cost recovery far below the ceiling of 75% of production.

For example, if at some juncture, recovered costs for crude amount to 40% of production, that leaves 60% to split between government and contractor, instead of the initial 25%.

Another writer, Professor C. Kenrick Hunte had said in a letter, that this is “a false hope” and that ExxonMobil – the operator – would be “unwilling to relinquish control of its 75% share” of total revenue. Gaskin said that any unwillingness by the operator would be irrelevant, and that the increase of Guyana’s take in the future is a fact.

“Exactly when this will happen depends on the amount of wells explored before the contractor’s exploration license expires and how many are developed for production,” Gaskin said.

At present, ExxonMobil plans to have six floating production, storage, and offloading (FPSO) vessels operating offshore Guyana by 2027, producing 1.2 million barrels of oil per day.

The oil major expects that there will be a substantial reduction in the share of production going to cost recovery in 10 years’ time. The estimate of 8-10 years depends on several factors: the production levels in the Stabroek Block, the size and scale of the projects and more importantly, the price of oil during that period.

OilNOW has shown that Guyana’s take from oil production is larger than ExxonMobil’s – larger even than the entire Stabroek Block consortium which includes Hess and CNOOC. Vice President Dr. Bharrat Jagdeo also alluded to this during a recent press conference.

While profit is split 50/50 between government and contractor, resulting in an initial 12.5/12.5 post cost recovery split, the consortium pays 2% royalty to Guyana. This increases Guyana’s take to 14.5% and decreases the consortium’s take to 10.5%. This 10.5% is then split three ways between the co-venturers, based on their agreement.

With these numbers, when cost recovery is reduced in 10 years’ time, Guyana’s take will still and always be more than that of the consortium.

The South American country has already received close to one billion US dollars in revenue from profit oil, and royalties, since production started in December 2019.

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