The average cost per barrel of oil produced by Exxon is questionable, unacceptable

Mar 09, 2023 Letters

Dear Editor,

Since oil has been extracted and exported from Guyana, no EEPGL financial statements have been made available to the public. More particularly, no financial data on the average cost of a barrel of oil has been publicized, given that this is an important non-renewable resource in Guyana’s patrimony. This is a serious concern for the Guyanese people because the best that we can infer about the cost of a barrel of oil is based on a false profit calculation that links total cost with total revenue (TR), such that total cost (TC) is equal to 75 percent of total Revenue: TC = 0.75TR. (Note: TR = PQ, where P is price and Q is the number of barrels of oil sold). The Bank of Guyana 2021 Annual Report (page 21) confirms that the average price (P) for a barrel of oil is $40.00 in 2020; and the price increased in 2021 to an average of $70.48 per barrel (Table 1).

Employing the total cost formula (TC = 0.75 TR) and dividing by the number of barrels of oil (Q) extracted, a fake average cost per barrel of oil (ACBO) is US$30.00 in 2020 and $52.86 in 2021, a massive increase of 76.2 percent in the cost of a barrel of oil in just one year. This elevated cost will continue to climb anytime the price of a barrel of oil increases. Of course, when the price declines the average cost per barrel of oil will decline; but this typically does not occur, given the increasing demand for gasoline, oil shortages due to the current war, and the actions of major producers, including the 13 countries that are members of the Organization of the Petroleum Exporting Countries (OPEC). Recognizing that the formula for calculating the average cost of a barrel of oil is: ACBO = 0.75P, this EEPGL methodology is palpably unacceptable because it is at variance with the cost categories identified by other oil producing countries. For example, the production cost for a barrel of oil by several countries do not include the price of a barrel of oil in the cost function, as it is employed in Guyana. Instead, in these countries, the cost function only considers gross taxes, capital spending, production costs, admin. and transport costs (Table 2).

A review of the cost data in Table 2 will show that Saudi Arabia, followed by Iran and Iraq are the lowest cost producers, with the cost per barrel of oil ranging between US$8.98 to US$10.57. In contrast, Venezuela, Brazil and the UK are the high-cost producers with costs per barrel ranging between US$27.62 to US$44.33. While cost data for 2020 and 2021 for these countries are not available, a comparison will show that Guyana is unmistakably a high-cost producer at US$52.86 per barrel in 2021. In fact, Guyana’s cost per barrel is even higher than the cost in the UK of US$44.33 per barrel. Additionally, since Guyana is advertised as a low-cost producer, given that it has sweet crude oil that is in high demand (https://en.wikipedia.org/wiki/Sweet_crude_oil)..), together with only 2 percent royalty, this relatively high-cost outcome for a barrel of oil in Guyana is indeed surprising. Consequently, the Government must fix this inequity imposed by EEPGL; and exclude total revenue from the cost function; otherwise, the cost of barrel of oil produced by EEPGL will continue to increase as the price of a barrel of oil increases.

Sincerely,

Dr. C. Kenrick Hunte

Professor and Former Ambassador

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