Exxon parent company demands millions in fees from Guyana’s oil

Aug 01, 2021 News

…money is deducted annually from oil as recoverable expenditure

Kaieteur News – Guyana has a signed Petroleum Sharing Agreement (PSA) with Esso Exploration and Production Guyana Limited (EEPGL) which holds a 45 percent stake in Guyana’s Stabroek Block, together with its partners Hess Corporation Guyana and China National Offshore Oil Company (CNOOC).
EEPGL, is incorporated in a known tax haven — the Bahamas — with a registered office in Guyana and is the company commonly referred to as ExxonMobil Guyana — the operator for the Stabroek Block.

Director of Financial Analysis: IEEFA, Tom Sanzillo

To date, the expenditure for which the company deducts through the sale, of as much as 75 percent of the crude produced in the Stabroek block, has in large part remained in the domain of the partners and has never been shared publicly.
A recent study on Guyana’s Oil and Gas industry and the economics involved by Tom Sanzillo, Director of financial analysis for the Institute for Energy Economics and Financial Analysis (IEEFA), has uncovered that EEPGL in fact pays its parent company ExxonMobil Corp.— based on Texas USA — a hefty Parent Company Overhead (PCO) fee.
A PCO fee is described in business circles as a fee charged by an operator to its co-venture partners in respect of costs of support services from its parent organisation such as Human Resources security and procurement services, and is most commonly charged on the basis of a percentage of all other sums charged to the joint account.
According to Sanzillo in his analysis, EEPGL prior to 2020 paid over US$73M in PCO fees to its parent company.
Sanzillo in his July 2021 report said, that EEPGL paid ExxonMobil Corp. US$35M last year and will this year fork over US$4M more, or US$39M in PCO fees.
Next year, Sanzillo predicts the fee being paid to the US based parent company to increase to US$53M and then US$64M the following year.
Slated to collect US$93M in 2024, it would mean that by the end of the next three years EEPGL would have paid over to the Texas based ExxonMobil Corp. almost half a billion US$ in fees, or US$360M total.
Sanzillo’s analysis reviewed the pre 2020 period up to 2024.
This publication had yesterday reported that Sanzillo in his findings had found too that another of the expenditures for which Guyana is being charged a hefty amount relates to the interest being charged on the loans contracted by EEPGL.
He had found that on the interest alone that is being paid by the company through recoverable cost oil, the country prior to 2020 had paid US$143M.
For 2020, according to Sanzillo, interest on loans accounts for US$229 and this year, he projects the amount to be some US$336. Guyana’s total share from production in the Stabroek Block is projected at US$226M, a difference of US$110M.
Based in his projections, by 2024, Guyana would have had to repay some US$2.8B on loans for projects that had been approved up to July this year — the month the analyst report was published.
According to Sanzillo, next year, he is projecting that the payment for interests would amount to some US$488M, while the country’s total take for that year would be US$434M or US$54M less.
For 2023, Sanzillo projects government’s total share to increase to US$905M while the US oil major will utilise some US$661M from cost oil to use for interest on loans.
In 2024, the financial analyst predicts total earnings for Guyana to be US$1.3B while the interest payments alone for that year would amount to US$946M.
The total recoverable costs, according to Sanzillo, are currently far in excess of annual gross revenue from production. He observes in his analysis that a portion of gross revenue goes to retire development costs in addition to paying for operations and profit and the remaining unrecovered balance is carried over each year.
“It is generally assumed that as each year passes, new wells (Liza Phase 2 and Payara) could be added and revenues grown commensurately.”
It was noted too that robust annual revenue payments to Guyana will be delayed as additional development costs are added to the cumulative unrecovered balance.