Don’t expect big oil money soon — Jagdeo

Aug 20, 2021 News

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Nation must live within its means…

Kaieteur News – Vice President Bharrat Jagdeo says Guyanese will have to live within their means for quite a while into the future, since major inflows of revenue from the rapidly developing oil and gas sector will not be had by the country for the next few years.

Jagdeo made the admission during a Baker’s Institute Conversation on Tuesday, while attending the 2021 Offshore Technology Conference (OTC), currently underway in Houston Texas, USA.
The Vice President is currently leading a local delegation to the annual international event and was asked to give a perspective on Guyana’s foreign policy relations in the region in light of its newfound wealth.
To this end, Jagdeo told those in attendance, “we don’t see ourselves wealthy as yet, oil revenue, the magnitude that would see major flows to Guyana is not coming for the next few years.”
According to Jagdeo, “US$300M/US$400M a year now is not a lot of money and many people think, oh the wealth will come tomorrow or, it’s here today and suddenly have to start splurging.”
The Vice President, as such was adamant, “we have to live within our means for quite a while into the future.”
Doubling down on his position, the Vice President noted, “A lot of people believe we have a lot of money to give,” and drew reference to a publicly voiced opinion, initially by Professor Clive Thomas, who intimated a US$5,000 cash transfer to Guyanese families annually.
Rubbishing the argument, the Vice President noted however, that if such a policy were to be adopted, it would cost some US$1B yearly, “and we only collecting US$300M.”
To this end, the Vice President said that persons had unrealistically raised the expectations for Guyanese with regards their oil wealth for political purposes.
Asked to project his vision for Guyana in the long to medium term, the Vice President pointed to increased contributions to the non-oil economy, generating as much as oil. To this end, he spoke to the diversification on the economy with a particular focus on the nation’s agricultural potential.
Guyana’s delayed revenue earnings were recently highlighted in a July 2021 Report done by the Institute of Energy Economics and Financial Analysis (IEEFA).
In that report, IEEFA Director, Tom Sanzillo had documented that by the end of 2024, ExxonMobil Guyana is slated to receive some US$42.7B representing 85 percent of the take from some 555 million barrels of oil scheduled to be produced from the Stabroek Block during that period—representing recoverable costs such as expenses and profits.
Guyana’s take during the same period in contrast, sees the country earning some US$3.7B total, US$653M of which would represent taxes being paid by Guyana on behalf of the US oil major operating in the Stabroek Block.
Total royalty for its oil for Guyana at the end of 2024, is pegged to be US$523M or $100M less than what the country will take from its share, to fork over to the treasury as taxes—foregone revenue from ExxonMobil Guyana. The taxes projected for Guyana to pay by the end of 2024 amounts to some $653M.
According to Sanzillo’s finding, development costs alone to be recovered by Esso Exploration and Production Guyana Limited (EEPGL) during the period would amount to some US$24.7B of its total recoverable costs pegged at US$39.4B.
Sanzillo in his report notes that prior to 2020, ExxonMobil Guyana had already recovered for oil produced and sold in excess of US$3.4B, while costs recovered during that year amounted to $2.2B in bills to be recovered from cost oil.
This year, according to Sanzillo, ExxonMobil and its partners are slated to recover as part of its Field Development Costs, US$2.8B. Next year, the amount goes up to US$4B, then to $4.7B in 2023 and US$7.6B by the end of 2024.
This publication had recently reported that exact figures being deducted, as part of the recoverable expenses 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.
The recent study on Guyana’s Oil and Gas industry and the economics involved by Sanzillo, had uncovered that EEPGL in fact pays its parent company ExxonMobil Corp.— based on Texas USA — a hefty Parent Company Overhead (PCO) fee as part of its recovery fees.
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.
Sanzillo predicts the fee being paid to the US based parent company to increase to US$53M next year 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 US$360M total in fees.
This publication had reported too, that Sanzillo in his findings had found 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$229M and this year, he projects the amount to be some US$336M. Guyana’s total share from production in the Stabroek Block is projected at US$226M, a difference of US$110M.
Based on 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.

 

 

 

 

 

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