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Jagdeo says Guyana receiving full 2% royalty from Exxon
Kaieteur News – Vice President Bharrat Jagdeo on Thursday disclosed that Guyana is receiving its full 2$ royalty from ExxonMobil, as outlined in the Stabroek Block Petroleum Agreement.
Vice President, Bharrat Jagdeo
Jagdeo during his weekly press conference told reporters that while Professor, Dr. Kenrick Hunte in a letter to Kaieteur News on Sunday provided arguments that the country was receiving a mere 0.5% royalty, this was not accurate.
The chief policymaker for the sector explained, “Royalty is calculated on production minus, so total crude production minus the crude used in the operations for transport and on the FPSOs (Floating Production Storage and Offloading vessels), the fuel used. In Guyana’s case, the FPSOs are operated by gas, so there is no deduction whatsoever, so royalty is calculated on the basis of total production and total sales.”
He continued, “Every month, they have to confirm what the average weighted price would be and the Ministry gives approval for that…so at the end of the year when you aggregate this, you should get total sales figure. So we get 2% of that total sale, not 2% of the profits.”
Jagdeo further assured, “We got 2% of total sales as the royalty. What might be confusing to Hunte… is that the 2% is paid from the contractor’s profit, so in this case, the profit oil is 25%, 75% goes to cost recovery, so of the 25% of gross, that is total sales, we get 12 and a half percent. The contractor gets 12 and a half then he takes from his share of profits, 2% and pays it to government, so we end up with 14.5% of the 25% of gross and they end up with 10.5%.”
The Vice President was keen to note that the royalty, though listed as an expense for the contractor was not recoverable.
In his letter, Professor Hunte argued that ExxonMobil was paying the state 0.5% instead of the stipulated 2% agreed in the contract.
Royalty is a fixed percentage of the gross value of revenue, paid to governments or the owners of natural resources.
Dr. Hunte explained that based on his analysis, 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%).”
To this end, he noted that Guyana lost over US$208M in royalty between 2020 and 2022.
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