Guyana to get nothing from US$80-90M in income taxes Hess will pay globally in 2021

Feb 01, 2021 News

Kaieteur News – Despite the fact that Guyana is the jewel in the crown of Stabroek block partner, Hess Corporation, this country will receive none of the up to US$90M in income taxes the company expects to foot around the world for the year 2021.

Executive Vice President and Chief Financial Officer, John P. Rielly

Executive Vice President and Chief Financial Officer, John P. Rielly, revealed the company’s tax projections during its 2020 Q4 earnings call on Wednesday, last week.
“[Exploration and Production] income tax expense, excluding Libya, is expected to be in the range of $30 million to $35 million for the first quarter,” Rielly said, “and $80 million to $90 million for the full year 2021.”
Apart from Libya, Hess Corporation have operations in the jurisdictions of Malaysia and Thailand, as well as in Denmark, Suriname, North Dakota, the Gulf of Mexico and Guyana, according to its website operations map.
The company’s Chief Executive Officer, John Hess, said during the same call, that its assets in Guyana, the Gulf of Mexico, Bakken and Southeast Asia assets are its cash engines.
“Guyana becomes a significant cash engine as multiple phases of low-cost oil developments come online,” Hess said, “which we believe will drive our Company’s breakeven price to under the US$40 per barrel Brent, and provide industry leading cash flow growth over the course of the decade.”
Guyana is so valuable to the company that Hess said it expects Guyana to be its “growth engine”.
With Guyana at the top of its portfolio, Hess intends to have its resource base grow so much that it will be able to prioritise reducing its debt, then increasing cash returns to its shareholders through dividend increases and opportunistic share repurchases.
With such promise, the company still will not foot any income tax expenses for its Stabroek block operations.
The Stabroek block production sharing agreement (PSA) governing the fiscal agreement between Guyana, Exxon and its partners, Hess and CNOOC, grants the oil companies a permanent break on all taxes. The Kaieteur block petroleum agreement grants the same breaks.
Hess has a 30 percent stake in the Stabroek block, and a 15 percent stake in the Kaieteur block.
Not only are the companies exempt from taxes, Guyana has also agreed to give the companies tax certificates so they can avoid paying taxes in their home countries.
It is not unusual in this industry for tax exemptions and other concessions to be granted to keep investors in otherwise difficult situations. But in Guyana, these companies are so fortunate that many local commentators and international experts have posited that Guyana gave away so much that its share of the revenue from the sale of the Stabroek block oil is too meager.
Tom Sanzillo, Director of Finance at the Institute for Energy Economics and Financial Analysis, had told Kaieteur News that the public is essentially being shortchanged by the tax provisions in the agreement as, according to the Institute’s calculations, Guyana would be forfeiting US$653 million in taxes by 2025.
Despite years of criticism of the tax and other provisions in the agreement, with sustained calls for its renegotiation, major political parties and the Stabroek block partners have refused.
The contract is notably kept firmly in place by a rigid stability clause which requires the approval of the Stabroek block partners for it to be renegotiated. If the government tries to unilaterally renegotiate the tax provision or any other provision in a manner that affects the economics of the agreement, it would be bound to compensate the contractors for any losses they incur. If the government adjusts its tax laws or code in a manner that affects the contract economics, Guyana would have to allow Hess and its partners to supersede and be exempt from the amendment.