Guyana is benefitting from oil contract

May 18, 2022 Letters

Dear Editor,

I write to respond to the claims of a letter published in the press titled “No other country but Guyana has ever received such a low royalty and profit sharing and high cost recovery” that claims once again that Guyana is a “victim” of a bad deal.

First, hyperboles of that proportion are unacceptable without an attempt to present the facts. Vishnu Bisram’s letter overlooks the fact that the contract Guyana has is at very least average when compared to other new producing countries. According to a study by Rystad Energy, Guyana’s oil production could reach 1.2 million barrels per day by the end of the decade, which should translate into annual oil revenues of US$30 billion within 10 years.

Not even two years into production, we are well on our way. To date, Guyana has received GY$150 billion from its oil operations and for the 2022 national budget GY$126 billion is being used by the government to support economic development in the country.

Mr. Bisram’s centerpiece claim is that the price of oil has nearly doubled since the government signed the contract four years ago, but the percentage benefits have remained the same. This is more wordplay than real accusation. Of course, the percentage benefits have not changed—that’s how contracts work and that is exactly why percentages are used instead of fixed numbers. What has changed is that the profits that Guyana receives from every load of oil have almost doubled—from roughly US $60 million per shipment to more than $100 million this year.

Under the terms of the Stabroek Block production sharing agreement, Guyana is entitled to:

2% royalty;
50% of all profits
a cost recovery ceiling of 75%

This is more than fair compared to other newer oil and gas producing countries like Suriname or Brazil, which both have very similar pay structures. This isn’t out of the ordinary and it’s a gross mischaracterization on Bisram’s part to imply the government is essentially being bamboozled. The reality is that the average government take is likely to be around 60% of profits (factoring in both the pre-cost royalty and the post-cost profits.)

That places the country between Brazil at 63% and Mozambique at 57%. This very notion runs counterintuitive to Bisram’s implied idea that successive governments of both parties have failed in their most basic duty.

It’s also important to remember what Guyana is not getting in this deal: financial risk. From 2015-2019, oil and gas companies invested around US $8.1 billion in exploration and development activities in the country’s offshore sector. Under Guyana’s fiscal regime, the oil and gas companies investing in the offshore sector have assumed ALL risks during the exploration phase. No taxpayer money has ever been invested into these efforts and Guyana has taken on zero debt. To do this development on our own, the debt needed would have been almost unimaginable.

I must question the motives of this letter as it’s clear Mr. Bisram is finding any reason to criticize the government and score political points. It’s especially disheartening when these claims go against every report that’s been published and the simple evidence of Guyana’s massive growth.

I hope in the future we can all avoid grand hyperboles in these letters and find the courage to hold other accountable in the face of inaccuracy.

Sincerely,

Romel Khan

Discover more from Kaieteur News

Subscribe to get the latest posts sent to your email.

Latest News