Losing approx. US$230M every 3 months by not applying new 10% royalty on Stabroek Block

Apr 26, 2023 News

…Guyana receives US$219M from oil in three months

Kaieteur News – As oil production increases offshore and ExxonMobil Corporation and its partners continue to add more ships, Guyana is set to lose out hundreds of millions this year due to the failure of the government to renegotiate the Stabroek block Production Sharing Agreement (PSA).

If the royalty from the new model contract is applied to the Stabroek Block, Guyana could earn a lot more each year. For example, Guyana’s last royalty payment could have been about US$230M if the royalty for the projects was 10%, instead of the industry-low 2%.

For the last quarterly payment for 2023, Exxon and its co-venturers paid G$12B (US$58M) to Guyana’s Natural Resource Fund (NRF) coffers. This represents 2% of the crude produced and sold for the previous quarter. If this was 10%, it would have been US$288M. Hence, Guyana has lost out on the opportunity to earn US$230M for oil produced in just three months because the People’s Progressive Party Civic (PPPC) administration refuses to pursue a better royalty payment.

This could provide a significant boost to the country’s economy, particularly given the large amounts of oil that are expected to be produced from the Stabroek Block over the coming years. Government could use such earnings to invest more in protecting the environment, through adaptation and mitigation efforts. Jagdeo complains endlessly about not having enough money for this purpose because of developed countries not keeping their promises.

That US$230M can even repay the US$138M loan Guyana took from China EXIM Bank for the renovation of the Cheddi Jagan International Airport (CJIA), with nearly US$92M to spare. It was the PPPC government that borrowed that money from China and plunged Guyana into debt.

If US$230M is paid to Guyana once every quarter over a full year, it would add up to US$920M. That could pay off the full cost of the Gas-to-energy facility that the government plans to build at Wales. Such a situation would prevent Guyana from having to go to the US EXIM Bank for the US$646M it is pursuing in loan finance to support the project.

These numbers are only for oil production at less than 400,000 barrels per day (bpd). The Prosperity floating production, storage and offloading (FPSO) vessel is preparing to start producing this year, taking production to 600,000 bpd. Exxon plans to increase production to 1.2M bpd by 2027.

Leaving Guyana to deal with a 2% royalty for the exploitation of 11 billion barrels of oil equivalent will cause the country to lose out on the opportunity for billions of US dollars in earnings over the lifetime of the Stabroek block PSA.

The new model contract is expected to be finalized later this month. Government said the terms will be used for the blocks that will go out in the auction and blocks currently held by oil companies offshore Guyana.

ExxonMobil, Government, Guyana, Production Sharing Agreement (PSA), Stabroek Block

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