Without renegotiation Exxon contract ties Guyana to meagre share until oil is exhausted — Prof. Hunte

Jul 06, 2022 News

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Kaieteur News – The production sharing agreement with ExxonMobil Guyana and its provisions as is, will ensure that Guyana continues to receive the 14.5 percent take from its oil reserves in the Stabroek Block until those oil reserves have been exhausted.

This is the conclusion of former Guyanese plenipotentiary representative, Professor Cyril Kenrick Hunte, who in repudiating arguments that in time, the 75 percent cost recovery being deducted for Exploration and other costs such as the initial capital layout would be reduced thereby increasing the share due to the country.

Professor Hunte is the former High Commissioner of the Cooperative Republic of Guyana to the Republic of South Africa and is also the Non-Resident High Commissioner to the Republic of Namibia, High Commissioner of the Republic of Zambia, and Non-Resident Ambassador to the Republic of Zimbabwe.

He is a full Professor of Economics (on leave) from the Department of Economics at Howard University, Washington, D.C., where he was Director of Graduate Studies in the Department.
Professor Hunte was also an Adjunct Professor at Johns Hopkins University, Bowie State University, and a Lecturer at the University of Guyana and also holds a PhD in Economics from the Ohio State University, USA.

He has also published numerous scholarly articles in peer-reviewed journals, book chapters, and letters to the editors on various issues; as well as participated in radio and television discussion programmes; and conducted consultancies in India and the Caribbean for the World Bank and the Food and Agriculture Organization. In Guyana, he was the Chief Executive Officer/Director of the Guyana Development Bank (GAIBANK)

According to Professor Hunte, 14.5 percent of revenue is written in the contract and increasing the number of wells explored – which may result in an increase in production – will not change the contractual 14.5 percent.

In fact, Professor Hunte argues that what will instead obtain is that it will shorten the number of years required to exhaust the oil reserves in that hole.
As a result, “if the government had agreed to a tax-exempt status for 20 years and all the oil is extracted in 10 years, there will be no taxes for Guyana” and quips, “we had this experience before with other non-renewable resources and we should not repeat it again.”

Using the financial data already in the public domain with regards EEPGL, Professor Hunte illustrates that by dividing EEPGL’s share of 88.5 percent by Guyana’s share of 14.5 percent, “this yields 5.8966 which can be transformed into an equation: EEPGL Barrels of Oil = 5.8966 (Guyana Barrels of Oil).”

This sharing model between EEPGL and Guyana, he said, “implies that every time Guyana receives one barrel of oil, EEPGL receives 5.8966 barrels of oil.”

According to Professor Hunte, “since Guyana is the sole owner of the resource, this is the identified inequity; and it is based on the parametres in the contract: 14.5 percent for Guyana and the rest to EEPGL.”

He outlined that “my primary objective for this industry is for Guyana to receive a fair share of the oil produced; and the business model employed must be consistent with protecting the environment.”

To this end, he noted that additionally there needs to be a building and maintaining of a transparent system that monitors exploration, investment, employment, daily production, marketing and hiring the best and brightest, regardless of their political affiliations, “this is the hill we must climb.”

This past month, Kaieteur News reported that EEPGL for the first time last year, recorded a profit in Guyana since it began work in the Stabroek Block in 1999.

EEPGL the operator of the Stabroek Block with a 45 percent interest, reported revenue for the year at $254B reflecting higher production volumes and a stronger price environment versus 2020.
In its Statement of Financial Position, at year-end 2021, EEPGL said its assets totalled $1.3 trillion, an increase of 30 percent versus the prior year mostly reflecting substantial incremental investments in the Stabroek Block.

EEPGL’s Vice President and Business Services Manager, Phillip Rietema at the time told media operatives that the performance of the company underscores the years of investments required before pay off.

The VP said, “Our total investments to date total $1.3 trillion, and with our partners it is over $3 trillion. With the plans we have in place out to 2025 will take investments north of $6 trillion. We will continue to invest greater than the returns we receive and we will continue to do so for many years.”

To date, EEPGL and its co-venture partners, Hess Corporation and CNNOC Group, currently have four sanctioned developments on the Stabroek Block.

The Liza Phase 1 development, which began production in December 2019 utilising the Liza Destiny floating production, storage and offloading vessel (FPSO) with a production capacity of approximately 120,000 gross barrels of oil per day, recently completed production optimisation work that expanded its production capacity to more than 140,000 gross barrels of oil per day.

The Liza Phase 2 development, utilising the Liza Unity FPSO, began production in February 2022 and is expected to reach its production capacity of approximately 220,000 gross barrels of oil per day by the third quarter.

The third development at Payara is ahead of schedule and is now expected to come online in late 2023 utilising the Prosperity FPSO with a production capacity of approximately 220,000 gross barrels of oil per day.

The fourth development, Yellowtail, is expected to come online in 2025, utilising the ONE GUYANA FPSO with a production capacity of approximately 250,000 gross barrels of oil per day.
At least six FPSOs with a production capacity of more than one million gross barrels of oil per day are expected to be online on the Stabroek Block in 2027, with the potential for up to 10 FPSOs to develop gross discovered recoverable resources.

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