Guyana's 2% royalty flagged by Int’l energy site as being lowest in Latin American

Guyana’s 2% royalty flagged by Int’l energy site as being lowest in Latin American

Nov 17, 2022 News

Kaieteur News – Since the first commercial oil discovery in Guyana’s Stabroek Block back in 2015, there have been more than 30 other significant finds in that concession. The success rate has no doubt motivated the country’s Dutch speaking neighbour and CARICOM sister, Suriname, to aggressively advance efforts to replicate a similar fate in its own waters.

Map showing the blocks located in the Guyana-Suriname basin

In fact, the National Government in Paramaribo is so eager to record comparable offshore achievements that it is using several incentives to attract deep-pocket investments from global energy companies. In his most recent analysis, Matthew Smith, a Latin-America Correspondent and Veteran Investor for Oilprice.com said Suriname is establishing some of the energy industry’s most generous production sharing contracts (PSCs). Smith wrote that the 30-year PSCs, which are up to 10 years longer than equivalent contracts offered by other Latin American countries, provide oil companies with considerable time to successfully develop and exploit any hydrocarbon discoveries made. He said too that Paramaribo has also established “a low royalty rate of 6.25% in order to attract urgently needed foreign energy investment.”

Importantly, Smith wrote that while that rate is higher than the 2% put in place by Guyana’s Government for the Exxon-led consortium exploiting the Stabroek Block, Guyana’s 2% is among the lowest in Latin America. He noted that oil royalties in Argentina amount to 12% of wellhead production. In Brazil, a 15% royalty is levied on the value of the oil produced, while they range from 8% to 25% in Colombia and 12.5% to 18.5% in Ecuador.

The President Irfaan Ali led Administration has remained adamant that it will not be making any changes to the low royalty in ExxonMobil’s contract even though it has set higher terms for 14 smaller blocks that will be up for grabs in Guyana’s maiden auction next year. For those blocks, companies will have to pay a 10 percent royalty.

Earlier this month, Vice President, Bharrat Jagdeo had also said that the new fiscal terms which will not be applied to Exxon’s Stabroek Block but to new players, also include a 50/50 sharing of profit oil and a payment of 10 percent Corporation Tax. Jagdeo said Government also agreed for there to be a 65 percent cost recovery ceiling in a given year. He said these terms, among others, had following work that was undertaken with several consultants. Jagdeo said IHS Markit, a leading information services provider headquartered in the UK is taking lead on guiding The Guyana Government on the auction.

The Vice President had said that the 14 blocks would range from about 1000 square kilometres to 3000 square kilometers with the majority of them being close to 2000 square kilometers. Eleven of these will be in the shallow area and three in the deep Area C.