Company that never read Exxon contract says Guyana will get massive returns

Jul 15, 2018 ExxonMobil, News

By Kiana Wilburg

Rystad Energy, a research firm based in Norway, predicts that Guyana will get massive returns from its proven oil reserves in the Stabroek Block. But the Norwegian entity’s forecast was made without an analysis of the Guyana-ExxonMobil Production Sharing Agreement (PSA).
That contract notes that Guyana will benefit from a two percent royalty and a 50/50 split of profit oil. But Guyana’s share of the profit oil can be lessened by several factors when one considers the terms of the contract as well as the loopholes available for abuse by the oil company.
Rystad’s Senior Analyst, Sonya Boodoo, said that the company did not look at the contract for its assessment of the government take. The official confirmed that the entity’s deductions were based on “bits and pieces of information in the public domain”.
She made this revelation following the conclusion of her presentation at an event hosted recently by the Private Sector Commission (PSC) at Duke Lodge. There, Boodhoo spoke about her company’s views on Guyana’s revenue share from oil production.

Rystad Energy’s Senior Analyst, Sonya Boodoo

Boodhoo said her company predicts that Guyana’s total oil production will surpass 600,000 barrels per day by the end of the next decade. Rystad believes that these volumes could generate total annual revenue of $15 billion from the oil and gas industry. After all costs are paid, the company noted that around $10 billion of profit could thus be split between the companies and the government.
Boodhoo faced several questions from Kaieteur News about the trustworthiness of her company’s assessment. But Wanita Huburn, Public Relations Officer of the Ministry of Finance, was quick to remind that the Rystad report/analysis is only one party’s “assumptions.” She also pointed out that she is quite sure that the company never saw Guyana’s oil deal with ExxonMobil. Questioned about this, Rystad’s Senior Analyst said that she was never privy to the contract.
Kaieteur News then asked Boodhoo to explain how an analysis of Guyana’s oil future with ExxonMobil can be done when all the variables that can affect the government’s take (especially those listed in the contract) have not been considered. Boodhoo simply said, “We compare contracts based on government’s take and project profitability.”
Boodhoo was also asked to comment on the fact that while her company paints a glowing report of Guyana’s take from the Stabroek block, the International Monetary Fund (IMF) does not. In fact, the IMF deemed the contract to be generous to the investor.
Boodoo said, “Basically, I think what we looked at was facts, and I am quite confident that what we say stands. If we look at all the offshore regimes, generally, the government’s take is 80 percent and Guyana’s is 59 percent. This is quite low, but we have to consider that Guyana is a frontier region and the average for frontier regions is 45-70 percent and Guyana falls in the average of the frontier regions. I don’t think it is too favourable to the government or to the investor. I think it is quite average.”
She added, “Had the regime been more favourable towards the government, you might not have had people coming in to invest.”
IMF CONCERNS
While the Rystad Energy Group is optimistic about Guyana’s take in the Exxon Agreement, the IMF, which has existed for 72 years, has been way more cautions in its statements. In a report it submitted to the government last year, the IMF said that the oil deal Guyana has with ExxonMobil is fraught with opportunities for abuse. It said that these very loopholes could result in a significant dent in the revenue Guyana is supposed to get from the oil find by the operator.
Given its findings, the IMF recommended that Guyana hasten moves to revise the current framework of its PSA.
Specifically, the IMF said, “Introduce a revised production sharing mechanism for new PSAs that provide the government with a higher share of profit oil as the profitability of projects increase.”
The IMF said, too, that the government should apply tighter ring fencing arrangements to its contracts. This ensures that an oil operator cannot transfer the expenses incurred at one well to another. The IMF said that in principle, the ring-fencing arrangement ensures that the government’s revenue from the Stabroek Block is calculated based on each field or well separately. In the absence of this provision, the IMF said that Guyana’s take could be affected.
In addition to this, the IMF reported that the ExxonMobil PSA has the lowest Average Effective Tax Rate (AETR) of all the fiscal regimes evaluated. The Fund said this result confirms that the terms offered in the agreement are generous to the investor.
The IMF recommended that Guyana move quickly in the direction of countries that have fine tuned their fiscal regimes. The Fund said that Guyana’s tax framework needs to be urgently improved.