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Guyana forfeited US$256 million in January by not renegotiating Stabroek Block 2% royalty to 10 %

Feb 11, 2024 News

Kaieteur News – Guyana has once again lost out on revenues for its people by not renegotiating the Stabroek Block Production Sharing Agreement (PSA).

In January, the Natural Resource Fund received a sum of US$137 million from both royalties and profit oil revenues.

This amount included a royalty payment totaling approximately US$64 million, with expectations set for a similar sum to be disbursed in the next quarter. The royalties, paid by the co-venturers of the Stabroek Block, equate to 2% of the crude’s market value, with yearly royalty income of US$320 million anticipated for Guyana.

However, there is a prevailing discourse advocating for a renegotiation of the royalty rate with Exxon, Hess and CNOOC. Guyanese activists argue for an increase to a 10% royalty rate, on grounds it would more accurately reflect the value of Guyana’s natural resources and honour the nation’s sovereignty over these assets. Government officials, however, have resisted such changes.

Under the current 2% royalty, Guyana projects to earn US$320 million for 2024, whereas a 10% rate would secure an estimated US$1.6 billion, signifying a forfeited opportunity of approximately US$1.3 billion in additional oil revenue for the year. For the January payment alone, the loss amounts to US$256 million.

Additionally, the NRF reported earnings of roughly US$73.57 million from sales, attributed to a December transaction involving approximately one million barrels of crude. This transaction is part of a larger forecast that predicts a total of US$2.1 billion in profit oil revenues throughout 2024.

The NRFs financial health was further augmented by interest income, totaling about US$10 million, leading to a balance of US$2.12 billion by January 31, 2024.

This fiscal status quo is shaped by government’s contractual agreement with ExxonMobil, which includes a rigid stability clause enacted under the previous administration. This clause, coupled with the absence of ring-fencing provisions, is believed to contribute to revenue losses, as it hampers the government’s ability to renegotiate more favourable terms. Despite the potential for immediate financial gains through renegotiation, Vice President Dr. Bharrat Jagdeo has expressed concerns that such actions could deter long-term investments in the country’s oil sector.

Moving forward, the PSA will see Guyana continuing to get a small minority of the value from oil production this year. Out of oil exports expected to total US$16.8 billion in 2024, Guyana will get a direct benefit of US$2.1 billion. This financial outlook is underpinned by the operations of three offshore projects in the Stabroek Block, which, through the deployment of floating production, storage, and offloading (FPSO) vessels, have a combined production of 650,000 barrels per day.

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