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Guyana’s take of profit oil should be higher if it pays oil companies’ income taxes – IMF
By Kiana Wilburg
According to all the Production Sharing Agreements (PSA) Guyana has with the world’s oil majors, the Government will pay the companies’ income taxes from this nation’s share of the profit oil.
The International Monetary Fund (IMF) has said there is absolutely nothing wrong with this arrangement, except for the part where Guyana fails to increase its take of the profit oil upon agreeing to pay the said taxes.
In a technical report dated April 2019, the IMF told the government that this arrangement it has in the PSAs is referred to as Pay On Behalf (POB). The IMF said POB is quite common and used in over 20 petroleum producing countries.
The financial institution said, “As a consequence, when the POB scheme applies to the sharing of profit petroleum, the agreed percentage of government’s share in profit petroleum has to be higher…” It therefore means that since Guyana agreed to pay the income taxes of ExxonMobil and partners, its take of the profit oil as outlined in the Stabroek Block agreement should have been higher than 50 percent.
Furthermore, the IMF which is one of Guyana’s key partners in developing its capacity for the management of the
oil sector, also noted that the PSA provisions supersede the Income Tax Act.
In its 2019 report, the IMF said, “While the ITA (Income Tax Act) applies to the petroleum operations performed under a PSA, its provisions are superseded by the provisions of the PSA dealing with the determination and payment of income tax, subject however to the special authorization process set forth in Section 51 of the Act.”
The Fund noted that Section 51 allows for the Finance Minister to take an order to the National Assembly which allows for the Income Tax Act to not apply to the oil companies. That Order for ExxonMobil and its partners, Hess Corporation and CNOOC/NEXEN, was passed on August 2, 2016 in the National Assembly.
HESS CORPORATION HAPPY
During its third quarter earnings call for 2019, Hess Corporation’s Senior Vice President and Chief Financial Officer (CFO), John Rielly was asked to update industry analysts about its tax arrangement with the government. Rielly alluded to the fact that investors or stakeholders basically had nothing to worry about.
He was at the time responding to a question from Bank of America Analyst, Doug Leggate.
The participant of the 2019 earnings call noted that Hess would obviously have to report tax associated with its operations. “But as we all know, there is no tax,” Leggate added while calling for some clarification.
Rielly said, “So the way that contract works (is that) after the cost recovery, the profit oil, they split for the government and the working interest owners. And the government out of its profit oil pays for the taxes of the working interest owners. So what that requires us to do is record a tax…”
The Chief Financial Officer and Senior Vice President added, “Whatever taxes that show up there do not affect the bottom line cash flow from our Guyana production.”
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