Latest update November 21st, 2024 1:00 AM
Guyana would have been receiving full 50% today from three oil projects
With ring-fencing…
– country already paid back Exxon project costs
Kaieteur News – Since oil production activities commenced in Guyana, the operator of the Stabroek Block-ExxonMobil has deducted more than US$19 billion in revenue earned to cover its investments into the development activities across the massive 26,800 square kilometers block.
Vice President, Bharrat Jagdeo
In the absence of a key provision known to the sector as ring-fencing, Exxon has spent the earnings from the operational projects for exploration works and to finance projects that are in the pipeline. Had Guyana ring-fenced each project, the country could have already paid off the costs for the three projects that are in operation today.
A ring-fencing provision allows for each project to pay for itself. It would also allow each party to benefit from 50 percent of the revenue from each project after the development costs have been repaid. The first project in the Stabroek Block, Liza One, is pegged at US$3.5B and Liza Two, US$6B. The third project, Payara, costs another US$9B. Together the three projects amount to US$18.5B.
Given that Exxon has already deducted US$19B in costs from Guyana’s oil, the three projects could have already been cleared had Guyana implemented a ring-fencing provision. This means the country could have already been positioned to benefit from 50 percent of all revenue generated at each of the projects. Despite repeated calls from stakeholders, local and abroad, for the government to ring-fence each Stabroek Block project, the administration has been reluctant to include such a requirement in the new Environmental Permits.
So far, five projects in the Stabroek Block have been approved without this critical governance mechanism. A sixth project application is before the Environmental Protection Agency (EPA) awaiting approval. Calls have been made for all future projects in the Stabroek Block to be ring-fenced, however these have since fallen on deaf ears.
In the meantime, Exxon has been utilising resources that should be in Guyana’s purse to finance the Stabroek Block activities. Vice President and chief policy maker for the sector, Bharrat Jagdeo had previously explained that Guyana is foregoing revenue now to gain massive profits in the future. He said, “We admitted that we are foregoing revenue now in exchange for massive future income because it’s going into new projects that will increase production, and so even with the same share of the 50/50, plus the two percent royalty that the future income, because of the bigger scale will be massive in Guyana’s case and we are deliberately foregoing that in this period for that purpose and then trying to grab this bone now could cause you to lose all the bones, the bigger bones too in the future.”
Even though the country is essentially acting as a co-investor in the offshore oil activities by funding the development projects, the country does not receive any additional benefits on its “foregone” profits. While the VP is comfortable waiting on the revenue to come in later, the country is faced with the real risk of losing billions, since oil prices are likely to drop in the future as the world transitions to renewable energy.
Cost recovery
It was reported that during the period 2018 to 2020, Exxon racked up some US$7.3 billion in expenses for the petroleum activities in the Stabroek Block. Meanwhile, in 2021, the company spent another US$610 million, according to its financial statement. In its 2022 Annual Report, ExxonMobil indicated that US$7.4 billion was deducted to cover its investments in the Stabroek Block. Additionally, the Bank of Guyana (BoG) in its Half Year Report also revealed that some US$4B was already recovered during the first six months of 2023. This means that between 2018 and June 2023, ExxonMobil and partners recovered a whopping US$19B in costs. Meanwhile, since oil production commenced, Guyana merely earned US$3,057,571,695.52 (inclusive of profit oil and royalty payments) as at September 20, 2023.
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