Oil costs and a fair share

May 24, 2023 Letters

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Dear Editor,

I refer to Dr. Tara Singh’s KN letter dated 5-19-2023, and captioned ‘Once Capital Costs are recovered by Exxon, the flow of oil money will accelerate!’. While I do not agree with this expectation of higher profits for Guyana, I will nevertheless examine in more detail some of the data Dr. Singh presented, under the assumption that the financial information and oil extraction data are accurate. Dr. Singh wrote that at the end of March 31,2023, the total oil extracted from Liza 1 and Liza 2 was 205,759,098 barrels.

Additionally, she noted that the total revenues earned by Guyana from the extracted oil from the 205,759,098 barrels of oil was US$2.238 Billion, consisting of royalties in the amount of US$277 Million and profit oil in the amount of US$1.961 Billion. Given that Guyana received 14.5 percent of the total revenue (2 percent as royalty (R) and 12.5 percent as Profit oil (PO)), this implies that the total revenue (TR) from the sale of the oil is US$15.4 Billion, with EEPGL share being US$13.2 Billion; and for every dollar that Guyana receives EEPGL receives $5.90 (Table 1).

 

What is also important from the data is the calculation of the total cost of producing 205,759,098 barrels of oil; and the average cost of a barrel of oil, relative to the cost structure in the Production Sharing Agreement (PSA). The total cost is defined as total revenue (TR) minus total profit (TP). Since Guyana profit share is US$1.961 Billion and EEPGL profit share is the same as Guyana’s profit share; therefore, the total profit is US$3.922 Billion. Furthermore, the total cost (TC = US$11.5 Billion) is the difference between the total revenue (US$15.44 Billion) and total profit US$3.922Billion (Table 2).

 

 

 

 

Given that 205.7 million barrels of oil was extracted, it therefore implies that the average cost of a barrel of oil is: Total cost (TC) divided by the number of barrels of oil (NBO) which is US$55.98.

Comparing this cost with the cost structure in the PSA, which states that 75 percent of the revenue is allocated to cost, indicates that the PSA total cost is US$11.58 Billion, yielding an average cost per barrel of US$56.28, which is larger than the actual cost per barrel by thirty cents per barrel (table2).  In my previous letter (KN: 5-16-2023—https://www.kaieteurnewsonline.com/2023/05/16/inequity-in-the-uaru-project/), it was stated that the average cost of a  barrel of oil was estimated at US$52.50. Furthermore, comparing the average cost per barrel of oil, US$ 55.98, US$56.28 and US$52.50, it is clear that Guyana under current arrangements is a high-cost producer that is more expensive than several countries. Equally disturbing is the idea that several cost items such as taxes and environmental insurance, among other costs, are not included in this calculation; and these costs will have to be paid from Guyana’s meager 14.5 percent share of the total oil revenue.

In an OILNOW report (https://oilnow.gy/news/a-timeline-of-exxonmobils-guyana-oil-development-projects/), it is stated that Liza Phase 1 and Liza Phase 2  have a total endowment of 1,050 million barrels of oil equivalent, which would be the estimates established by experienced geologists and oil specialists. Currently, the extraction from these two operations of 205,759,098 barrels is approximately 20 percent of the endowment. How long will it take EPGL to extract the remaining 80 percent (844,240,902 barrels) is unknown; and until the 85.5 percent of total revenue for EEPGL is changed, Guyana will continue to receive crumbs, from which it pays EEPGL taxes, issue fake tax receipts, and pay other costs from its meager 14.5 percent of total revenue.  Additionally, acknowledging that President Routledge said that if “we try to change the contract, the investment will stop.” (KN: 5-22-2023, https://www.kaieteurnewsonline.com/2023/05/22/nothing-more-for-guyana-from-exxonmobil/), it is clear that EEPGL does not hold Guyana’s interest and sovereignty in a positive light, for after all we are Non-Owner Associates in a PSA that does not mean ‘Production Sharing Agreement’, but instead, it means ‘Please Stand Aside’, for here comes the real owners of Guyana’s endowment, the EEPGL stockholders. Furthermore, since Guyana is not a shareholder in EEPGL, even though we own the endowment, I have some cautionary words for Dr. Singh who wrote: ‘Once Capital Costs are recovered by Exxon, the flow of oil money will accelerate!’.  Really, Dr. Singh? As our heroes and heroines of old had to fight for everything that upholds our human dignity, we Guyanese will have to fight for an equitable share of the cake for our future generations, because crumbs do not qualify as cake!

Sincerely,

Dr. C. Kenrick Hunte

Professor and Former Ambassador 

 

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• Dr Tara Singh, Dr. C. Kenrick Hunte, EEPGL, Exxon, OilNOW

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