Minimum royalty rate for deepwater acreage is 7 to 10 %

Oct 21, 2019 News

-Even a doubling of Guyana’s current rate would not scare away oil producers – Industry Analyst

In the eyes of Fitch Solutions, an industry-leading provider of macro intelligence data, Guyana’s two percent royalty in the ExxonMobil deal for the Stabroek Block is quite low especially when it is compared to other countries in the region like Brazil and Mexico.
The industry analyst noted that for the two nations identified, the minimum base royalty rate for deepwater acreage is 10% and 7.5%.
In fact, the company believes that even a doubling of the current rate will not discourage oil producers, especially after the recent oil discovery, which further lowered the risks of exploratory projects outside of the Stabroek block.
At present, Guyana’s arrangement with ExxonMobil sees the country receiving a mere two percent royalty and 50 percent of the profit oil from the Stabroek Block. Importantly, Guyana has agreed to pay Exxon’s taxes out of its share of the profit oil. This simply means that Guyana is accepting way less than 50 percent of the profit oil.
Even though there have been numerous calls for Guyana to get a fair deal, ExxonMobil has remained adamant about not returning to the table for the renegotiation of these and other terms. In fact, this newspaper had exposed Exxon’s deportment in this regard, with reference made to a brief on the technical meeting between ExxonMobil and officials of the Guyana Geology and Mines Commission (GGMC).
The meeting occurred in April 2016. The document was prepared by GGMC Commissioner General, Newell Dennison.
In his report on the meeting, Dennison said it was put on the table that there were some fiscal reviews being done and while they would not be concluded before finalising the new agreement and licence (which were both signed in June 2016), it would be necessary to include certain principles.
The GGMC Commissioner General said, “A provision for a royalty in a contemplated hybrid PSA (Production Sharing Agreement) was mentioned and in the context of ensuring that Guyana is not at a disadvantage in a high oil price environment in the future. Esso (ExxonMobil) was not at all receptive to that. However, it was left on the table.”
He added (in the document), “I have the view that there may be a fair chance to model some notional improved royalty to kick in, but I also speculate that in the environment of deep-water, deep target development, the price of oil would have to go up significantly before the departure of the financials that prevail now and what could materialise becomes of material consequence,” (The entire brief can be seen by following this link: file:///C:/Users/k.wilburg/Downloads/GGMC%20Brief%20on%20Esso%20April%2015%202016.pdf).
Minister of Natural Resources, Raphael Trotman, had said that Dennison and other GGMC officials were the lead negotiators for Guyana when the ExxonMobil contract was being tweaked in 2016.
Dennison’s suggestion, however well intentioned, apparently fell on deaf ears since no such provision made it into the modified contract.

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