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PNC still wants more info on benefits of ring-fencing oil projects
Kaieteur News – Economic Advisor of the Leader of the PNCR, Elson Low on Monday stated that the party still requires more information on ExxonMobil Guyana Limited (EMGL) offshore operations in the Stabroek Block, before a position is taken on ring-fencing the oil projects.
PNC Economic Advisor, Elson Low
During a news conference Low reiterated that the party would not only require well data but also expert’s advice to ensure that they do not harm the overall development of Stabroek Block through ring-fencing. Ring-fencing, in the realm of oil and gas, is a financial safeguard to segregate the economic activities of distinct projects. This strategy prevents the mix of funds from different ventures, ensuring that profits generated by a particular project are solely utilised to cover its associated costs.
Low said that he is aware of the current distribution of the earnings in the Stabroek Block, which is profit oil to cost oil ratio of 25 – 75%. The 2016 Production Sharing Agreement (PSA) signed by the previous Coalition government, stipulates that a whopping 75% of the monthly revenues are to be deducted as costs to repay the companies’ shareholders, while the remaining 25% proceeds are split as profits equally with Guyana – the country also receives 2% royalty making the total monthly earning 14.5%.
However, in the absence of a ring-fencing provision, the companies have the leeway to use the profits from producing oil projects to pay for others that are yet to commence production. Low said that he is cognizant that the oil companies have already recouped their US$4 billion for developing the Liza Phase One offshore project, adding that the profits from the producing developments (Liza One, Liza Two and Payara) are being used to develop future oil projects – which is the cause for the profits oil and cost oil ratio remaining the same.
Low stated too that the party welcomes the recent statements made by Vice President (VP), Bharrat Jagdeo and President of EMGL, Alistair Routledge, in relation to Guyana’s share of oil revenues projecting to increase substantially in the next two years. It should be noted that Exxon’s boss recently stated that Guyana’s profit will increase as the company will not be cost recovering at the same level. “We welcome this news but wish to strongly advise as follows. The PPP government, in its remaining time in office during this tenure, must ensure this projection materialises to the fullest extent possible,” Low noted.
However, when asked that in order for Guyana to see increased profits if that does not justify the call for ring-fencing, Low responded, “I see where you are coming from but, we need a bit more information on the impact of ring-fencing on future developments.”
It should be noted that the benefit of a ring-fencing provision would prevent oil companies from using revenue generated from a production field to offset costs in another project. It would also mean that when that project cost is repaid, Guyana would enjoy 50 percent of the revenue generated there. However, the PNC is adamant that a position on ring-fencing the projects in the Stabroek Block cannot be taken, until they receive the relevant information and advice on the offshore operations.
“So we want to ensure that the developments across the field are all viewed in a competitive light by investors and that we don’t dissuade investment by ring-fencing but in order for us to come to that determination we would need to see he data from the wells themselves and we will have to seek appropriate expertise to be able to ensure that we’re not harming the overall development of Stabroek Field through ring-fencing,” the PNC economist said.
Low continued, “So they are benefits to ring-fencing, it is something that we are looking at but in order to come to a clear position on that, in order to have I think give the investors the type of clarity that we want to (see) as Guyanese, we need additional information of course which the government is unwilling to share with the Guyanese people.”
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