Opposition to push for higher royalties in new PSA

Sep 01, 2022 News

Kaieteur News – The Guyana basin has proven its fortune with over 30 discoveries already made in one location. This means that the Government should be seeking double figure royalty rates in any new Production Sharing Agreement (PSA).

Opposition’s Oil and Gas spokesperson, Elson Low

This is according to Elson Low, an Opposition spokesperson on oil and gas matters. In a recent interview with this newspaper, he explained, “We have to stop thinking about Guyana when it comes to our resources from the perspective of being a poor country rather we are a wealthy country.”

To this end, Low suggested that Guyana should be pursuing similar terms included in more developed countries’ PSAs regarding royalty. Countries like Canada for example currently have royalty rates between five and 40 percent. It was only in May this year that the Canadian government decided that the new rate will be in effect while companies pay off costs of newly drilled wells. Once that point has been reached, the royalty rates will slide between five to 40 percent, depending on the price of natural gas. Meanwhile, in the United States for offshore leases, royalty rates have ranged recently from 12.5 percent to 18.75 percent. But the Biden administration has ordered that these rates be increased.

In the existing Stabroek Block agreement, Guyana receives a mere two percent royalty on its rich oil resource. Taking the aforementioned into consideration, Low reasoned, “Before we were a highly speculative environment, but now that we have so many oil finds and importantly a high success rate at discoveries, that means we must consider ourselves from the perspective of being a wealthy country and therefore assess our royalties from that standpoint.”

The Opposition member added, “We must approach any new royalty rate as a wealthy country would approach it. I think it is clear that we should look at the royalties that wealthy countries receive and make an assessment of what are some of the arrangements and some of the returns that are more in line with Guyana’s changed circumstances.”

Royalty is a percentage of total production on any commodity, paid to the owner of the resources and are free and clear from any costs whatsoever.

The current PSA was signed by the former Coalition government. This newspaper had reported that not only is Guyana receiving the lowest royalty rate in the world, but this meagre two percent is also being recovered by the contractor, ExxonMobil Guyana.

The question had previously been posed to the Vice President Bharrat Jagdeo by this publication who explained, “now I can answer definitively because I have talked, I have spoken (sic) to GRA on the tax side so because the royalty is not cost deductible but it is GRA, based on our laws, are GRA tax deductible but they don’t come out of the cost bank so the contractor has to pay from its share, the two percent royalty to the government.”

This, however, translates to a dilemma, since the first part of the Vice President’s answer that under the Laws of Guyana, the royalty is listed as a tax deductible for tax purposes. What this means is that the royalty is a tax-deductible expense for the Stabroek Block operator. This means that the royalty is paid out of ExxonMobil Guyana’s expenses—this much is corroborated in the oil company’s own financial statements which outline royalty being paid as an expense.

Despite this and other major shortcomings in the contract that benefits only the oil company, the government and Opposition are adamant that the lopsided deal must not be renegotiated. Instead, they have both agreed that the country should seek better terms in new oil contracts.

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