Jagdeo, Norton, Ramjattan, Patterson unsure whether Exxon recovering 2 % royalty

Jun 21, 2022 News

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By Zena Henry

Kaieteur News – Taking into account that oil companies do what they must for maximum profits, and the fact that loopholes in production sharing agreements allow them to cream off more than they should from oil projects, questions are brewing as to whether the meager two percent royalty paid on thiscountry’s oil endowment is being recovered by the Stabroek Block operators as an expense.

The issue of royalty recovery came to the fore and became a matter of concern when Kaieteur News reporters, during their coverage of the recently concluded Trinidad and Tobago Energy Conference in May, found out that for 60 years, oil operator was giving the twin nation royalty payments on one hand and recovering it on the other. This unfortunate situation, it was explained, befell the CARICOM state after it failed to detail explicitly what costs are recoverable by the oil company in the sharing agreement.
Vice President Bharrat Jagdeo was unable to say pellucid whether ExxonMobil’s subsidiary Esso Exploration and Production Guyana Limited (EEPGL) is in fact recovering the sums paid as royalty. When asked the question at his last press conference, the Vice President told this newspaper that he did not want to make a statement that he might have to retract. He preferred to leave the question in the capable hands of the nation’s tax and legal authorities/guardians. “I don’t want to venture public positions that I may have to walk back on at some point in time so I will be a bit cautious on this,” he told the newspaper.Opposition members were asked the same question. Leader of the Opposition, Aubrey Norton told the Kaieteur News that the Stabroek operator should not be able to recover the two percent royalty. “If it is royalty, it cannot be recoverable,” the Leader said. He added that the Stabroek block PSA doesn’t make royalty recoverable, but the smaller blocks have an unusual clause in place that makes royalty recoverable in that regard. Former Minister of Infrastructure, and current Shadow Oil and Gas Minister, David Patterson also told the Kaieteur News that the two percent, “is not supposed to be recoverable.” He told the Kaieteur News that according to his understanding of the PSA, Guyana’s two percent royalty is not supposed to be recovered by the oil company.
Leader of the Alliance For Change and former Security Minister Khemraj Ramjattan in his contribution submitted that during the Coalition government’s handling of the PSA, there was no provision in the document for Exxon to reclaim the two percent royalty. As such, he said he is “unaware” that the payment is recoverable. Ramjattan added too that if the oil company is in fact reclaiming the royalty, it “goes against the contract”, in his view.
Winston Jordan, who was Finance Minister under the last administration, told the Kaieteur News, “absolutely not,” that the two percent royalty is not recoverable by the oil companies. He even mentioned that the oil company itself has stated that the two percent royalty is coming out of its profit.
Under the PSA, Exxon is allowed to recover cost incurred in the development of Guyana’s oil reserves as part of its expenses. The issue therefore is whether the two percent royalty is being recovered as an expense incurred since the PSA does not state explicitly whether this two percent is one of the non-recoverable expenses. In light of the uncertainty, Trinidadian oil experts are urging Guyana to get it clear whether the two percent is a recoverable expense. Guyana’s PSA with Exxon and partners highlights that the two percent royalty is paid from Exxon’s share of profits. Also, where the PSA states what is non-recoverable, royalty is not listed as such.
In the case of Trinidad, it was stated that instead of the companies paying royalties out of their share of profit oil, the weak Production Sharing Agreements left Trinidad and Tobago actually making those payments on behalf of the foreign oil companies. This was taking place for almost 60 years due to there being no explicit provision outlining that oil companies must make such a payment to the State and that same is not recoverable under any circumstance. Given the unfavourable situation in which the Trinidadians found themselves, in 2017, the country eventually overhauled its fiscal regime for the sector and introduced a new and improved fiscal model that demanded a 12.5 percent non-recoverable royalty. Guyana’s PSA has been described as one of the most lopsided contracts in the industry, favouring heavily, the foreign oil companies. It has been described as being especially weak in protecting the finances that Guyana ought to be receiving from its oil and gas sector. The meagre two percent royalty that Exxon is paying Guyana is for the right to access the oil and gas resource the country owns in its offshore Stabroek Block.

 

 

 

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