Oil contract gives Minister power to let ExxonMobil take back royalty

Oil contract gives Minister power to let ExxonMobil take back royalty — GRA Boss

Jun 26, 2022 News

…says was not done but contract does not explicitly rule out recovery

Kaieteur News – Oil producing countries across the world have been robbed of their lawful benefits due, through skullduggery involving taxes and royalties to be paid to the tune of billions of US dollars.

Natural Resources Minister, Vickram Bharrat

As such, when the matter of whether Esso Exploration and Production Guyana Limited (EEPGL)—ExxonMobil Guyana—and their partners, Hess Guyana Exploration Ltd. and China National Offshore Oil Company were recovering the two percent royalty paid to Guyana, it sparked a debate.
This since, among other reasons, EEPGL’s financial statements lists royalty payments as an expense after which it realised G$132B in profit last year and would have had to be making royalty payments on crude sold since December 2022.
While Guyana’s accounts have reflected receipts of royalty payments, ExxonMobil along with Vice President Bharrat Jagdeo recently insisted that the contractor was in fact, reducing its profit in order to make its royalty to payment to the country which meant, the country was securing a bigger share of the profits had.
This, since the formula for profit sharing under the agreement stipulates 75 percent of production be reserved as cost oil to make payments after which the contractor and government would split the profit.

GRA Commissioner General, Godfrey Statia

This newspaper had on two different occasions confronted Vice President Jagdeo on the matter and after not providing an initial answer, proffered that the royalty was not cost deductible but was in fact tax deductible.
GRA Commissioner Godfrey Statia, yesterday in an attempt to provide clarity, confirmed that the Production Sharing Agreement (PSA) signed in 2016 between the parties was in fact silent on the matter but pointed to a provision that allows for ministerial discretion.
According to Statia, on the matter of royalty, “Under Article 15.6 of the PSA under review, the contractor pays a Royalty of two percent to the Guyana Government on the value of all petroleum produced and sold. This item (Royalty) is not explicitly mentioned as cost recoverable under Annex C, Section 3.1 (without further approval of the Minister) or 3.2 (with approval of the Minister). Further, it is not mentioned under Section 3.3 of Annex C as a Cost not Recoverable under the Agreement.”
According to Statia, however, “Even though Section 3.4 of Annex C, vests the power in the Minister to determine the recoverability of an expense not covered under the provisions of Section 3, such discretion has not been exercised by the Minister relative to Royalty.
Section 3.4 of Annex C reads stipulates, “Other costs and expenses not covered or dealt with in the provisions of this Section 3 and which are incurred by the Contractor in the conduct of the Petroleum Operations are recoverable subject to the approval of the Minister.”
According to the GRA Commissioner General, however, “Royalties paid to the Guyana Government is an Expense incurred in the production of income for the contractor(s), but is not allowable in the calculation of Cost Oil.”
And as such, he reasons “It therefore follows that the 2 percent Royalty payment currently adds to the Government’s take. Hence the Guyana Government presently receives a total of 14.5 percent in Royalty and Profit Oil (2 percent plus 12.5 percent).”
Additionally, on the matter of taxes, the Commissioner General, in his public missive seeking to clear the air, said, “the 2 percent Royalty paid to the Guyana Government is not a cost in determining Guyana’s share of Profit Oil, but is an expense in determining the contractors’ taxable income.”