Guyana only receiving 0.5% royalty instead of 2% from Exxon - Professor Hunte

Guyana only receiving 0.5% royalty instead of 2% from Exxon – Professor Hunte

Mar 06, 2024 ExxonMobil, News, Oil & Gas

Kaieteur News – The Production Sharing Agreement (PSA) Guyana signed with ExxonMobil and its Co-Venturers- Hess and CNOOC- stipulates that the country must be paid two percent royalty of “all petroleum produced and sold” but the contractor has been paying the state 0.5% instead.

Professor and Former Ambassador, Dr. Kenrick Hunte

This was recently explained by Guyanese scholar, and former Ambassador, Dr. Kenrick Hunte. Royalty is a fixed percentage of the gross value of revenue, paid to governments or the owners of natural resources. Hunte in a letter to this newspaper, published on March 3, 2024 said the oil company was instead paying Guyana out of its profits, thereby shortening the already meagre revenues for the country from royalty.

The former Guyanese Ambassador was keen to point out that the oil giant has been deducting 75% of the monthly earnings in the Stabroek Block to recover its investments, in keeping with the provisions of the Petroleum Agreement. It is from the remaining 25% that Guyana receives 50%, which is equivalent to 12.5% of the total revenues earned. Exxon then hands Guyana a share of its earnings, valued at two percent.

Dr. Hunte therefore argued that this is not in keeping with the terms of the Agreement, pointing out that Article 15.6 page 39 states that: “The Contractor shall pay, … a royalty of two percent of all Petroleum produced and sold.”

Consequently, he explained, “This implies that the two percent royalty must be sourced from the total sales and not from the profit share of EMGL (ExxonMobil Guyana Limited). In the circumstances, it is contended that this act by EMGL, which uses its profit share to pay Guyana’s royalty, violates the condition of Article 15.6 in the PSA; it robs Guyana of its correct royalty payment; and this approach by EMGL generates a smaller share of total sales for Guyana.”

To arrive at his conclusion of the 0.5% royalty being paid to Guyana, Professor Hunte shared the formula he used. “This understated royalty (UR) amount is specified as: UR = 2% (profit) = 2% (25%) total sales (TS) = 0.5% (TS). Therefore, Guyana’s share of total sales (TS) is not 14.5%, but it is only 13 %; that is: profit (12.5 %) plus royalty (0.5%).”

Exxon’s 2022 Annual Report shows that the company paid Guyana royalty out of its revenue

Notably, the financial statements for ExxonMobil Guyana confirm this state of affairs. The reports show that the oil company has been paying royalty to Guyana out its revenues.

As such, Dr. Hunte highlighted that the outcome is Guyana is being blatantly robbed of 1.5% of its share of total sales. He was keen to note that while some might think 1.5% of total sales are insignificant, it is in fact very critical when billions of dollars is involved.

Dr. Hunte is a Professor of Economics at Howard University, Washington, D.C., and former Adjunct Professor at Johns Hopkins University, Bowie State University. He holds a PhD in Economics from the Ohio State University, USA and is also a former High Commissioner of the Cooperative Republic of Guyana to the Republic of South Africa and is also the Non-Resident High Commissioner to the Republic of Namibia, High Commissioner of the Republic of Zambia, and Non-Resident Ambassador to the Republic of Zimbabwe.

He has published numerous scholarly articles in peer-reviewed journals, book chapters, and letters to the editors on various issues; as well as participated in radio and television discussion programmes; and conducted consultancies in India and the Caribbean for the World Bank and the Food and Agriculture Organization. In Guyana, he was the Chief Executive Officer/Director of the Guyana Development Bank (GAIBANK).