Guyana stands to gain more by reducing cost recovery limit in Exxon deal

Guyana stands to gain more by reducing cost recovery limit in Exxon deal – Economist

Jun 11, 2022 News

Kaieteur News – In its present oil deal with US oil major ExxonMobil, Guyana merely receives profit after 75 percent is withdrawn to cover operational expenses. But one Guyanese Professor believes that Guyana could gain more by amending the cost recovery ceiling from 75 percent to 50 percent.

The panelists that appeared on the Globespan broadcast

Dr. Tarron Khemraj, a Guyanese by birth who holds a PHd in Economics, recently gave this view while appearing as a guest speaker on a Globespan 24×7 broadcast to discuss ‘The Impact of Guyana’s Oil Windfall on Poor Guyanese’. The session, aired on June 1, last was moderated by Trinidadian, Shalima Mohammed and also featured Dr. Terrance Blackman, an Associate Professor of Mathematics in New York.
The conversation was premised on the fact that this year is the first that Guyana has withdrawn revenue from its oil and gas operations, which is estimated to contain some 11 billion barrels of oil. Added to that is the projection that production should ramp up to about 725,000 barrels of oil per day by 2025, with proceeds expected to climb to around US$250 billion given prevailing high oil prices. While the projections seem promising, Khemraj pointed out that this revenue must be split between ExxonMobil and Guyana, leaving the country with the smaller portion of the fraction.
When he was asked whether he believes Guyana can negotiate to get better terms for its oil and gas resources, the Economist shared, “I think you can tweak around the edges of some of the things that you have. I have written a few pointers on this; what I feel can be done that can increase the government’s share for example is…instead of having the cost recovery cap at 75 percent you can bring it down to about 50 percent. So what that means is Guyana gets more money up front and that’s always better”.
He added that because Guyana has already proven its wealth and is no longer new to oil finds, the country should be able to extract better terms.
In addition, Dr. Khemraj also pointed out that the outside of the contract, Guyana can rake in a lot more money if it pursues the auctioning of its oil blocks correctly.
Meanwhile, Dr. Blackman explained he too believes that Guyana should have done better when it discovered oil, to ensure better arrangements. Nevertheless, he noted that it is important at this time for government to look at how the finances earned can benefit the people.
Kaieteur News recently reported that after two years, Guyana received US$81 million in royalty payments from the two percent deal it signed with the oil company. This payment was secured between the period April 28, 2020 to January 27, 2022.
When converted to local currency, this amounted to just over $16 billion. Meanwhile the country received an additional US$638 million from profit oil within a two-year period as well.
This is the state of affairs while Guyana gave away billions in taxes to ExxonMobil for one year alone.
It was reported that between 2019 and 2020 alone, Guyana granted US$657 million or GYD$137 billion in tax exemptions to Exxon. The Auditor General, Deodat Sharma highlighted in his 2020 report that this excessive amount represented a whopping 62.75 percent of total collections by the Guyana Revenue Authority (GRA).
This means that the $137B forgone by government through tax exemptions for that period, amounts to 62.75 percent of what was actually collected by the revenue authority. The 2021 report by the AG has not yet been laid in Parliament, so information regarding recent tax exemptions is not available.
Commissioner General of the authority, Godfrey Statia predicted that unless policy changes are made in the oil sector, the tax exemptions to the company will only continue to climb.
A private citizen has since moved to the local Court, to challenge the “oppressive” tax concessions being extended to the multi-billion dollar firm. The legal proceeding was filed by Kaieteur News Publisher, Glenn Lall, through his Attorney-at-Law, Mohamed R. Ali on January 13, 2022.
Lall is arguing that many of the provisions listed under Article 15.1 of the Petroleum Agreement, dated June 27, 2016 between the Guyana Government and the oil companies, grants exemptions to persons other than licensees, which violate the Petroleum Exploration and Production Act, the Financial Administration (and Audit) Act, the Prevention of Discrimination Act, and the Constitution. Lall through his lawyer, therefore contends that the provisions are unlawful, null and void, and of no legal effect.

The matter which ExxonMobil subsidiary, Esso Exploration and Production Guyana Limited (EEPGL), joined as a respondent is set for continuation before Justice Nareshwar Harnanan at the High Court in Georgetown on August 12, 2022.
As such, Lall’s Attorney is expected to file submissions in response to the defence brought by the Government and EEPGL on or before June 3 while the respondents, Government of Guyana and EEPGL are expected to file their answers by July 1, 2022.
All final written arguments are scheduled to be filed by July 29 and August 12, 2022 is set for oral arguments.

On August 12, attorneys from all sides will be given at least 20 minutes to present their case before the court, after which the Court is expected to rule on September 9, 2022.