Exxon grabs US$8.4B out of US$11.8B revenue made in 2023 for cost recovery – Bank of Guyana Report

Jun 12, 2024 News

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With lack of ring-fencing…

Kaieteur News – In the absence of ring-fencing provision, ExxonMobil Guyana Limited (EMGL) in 2023 deducted a whopping US$8.4B of approximately US$11.8B in oil revenue generated in the Stabroek Block to repay its investments.

The Bank of Guyana in its 2023 Annual Report revealed, “The capital account recorded a lower deficit of US$1,780.0 million from US$3,658.4 million at end-December 2022. This was the result of net outflow of US$606.1 million in oil revenue to the Natural Resource Fund (NRF) and US$8,381.0 million in cost recovery (withdrawal of equity) by the oil and gas sector despite higher inflows to the private sector in the form of Foreign Direct Investments (FDIs).”

ExxonMobil Guyana Limited (EMGL), the operator of the Stabroek Block reported in its 2023 Annual Report that a total of 142 million barrels of oil were produced and sold in 2023; Guyana received 17 million profit oil barrels. The price of Brent crude oil averaged US$83 per barrel in 2023. This therefore means that the total revenue generated by Exxon last year was approximately US$11.8 billion.

In 2022, it was reported that the oil company deducted some US$7.4 billion to repay its investments in the Stabroek Block. This therefore means that cost recovery in 2023 grew by approximately US$1B. The increase in cost recovery was driven by the growth in oil production in the Stabroek Block. In November 2023, the third Floating Production Storage and Offloading (FPSO) vessel, Prosperity, commenced production activities.

The 2016 Production Sharing Agreement (PSA) stipulates that up to 75 percent of the total production from the contract area each month can be recovered. Costs not recovered in a particular month will be added to the next month’s charge.

Notably after 75 percent of the costs are deducted to repay Exxon, the remaining 25 percent is then shared equally between the government and the oil company. To this end, Guyana in 2023 received a meager US$1.6 billion in oil revenue, including the paltry 2% royalty.

In the absence of a ring-fencing provision, the companies can use the income from producing oil projects to pay for other projects that are yet to commence producing oil. A ring-fencing provision would therefore 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.

Although Guyana has been repeatedly advised by international experts to ring-fence the projects in the Stabroek Block, the country has refused to include such a provision to govern new projects being awarded to the operator.

While the Leader of the Opposition, Aubrey Norton is yet to announce a policy decision regarding ring-fencing, the government of Guyana has made it clear that the implementation of such a policy is not on its agenda.  Chief policymaker for the petroleum sector, Vice President Bharrat Jagdeo previously explained, “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.”

While Jagdeo fears Guyana not being able to gain revenue in the future from the sector due to a ring-fencing provision, experts in the industry have urged the nation to include such a provision to ensure it enjoys early returns from the sector. In three separate reports dated 2017, 2019 and 2019, the International Monetary Fund (IMF) stated: “This asymmetrical treatment of profit and cost oil will benefit the contractor at the expense of delaying government revenue.”

Meanwhile, the United Nations Development Programme (UNDP), along with another international expert, Chatham House and the World Bank called on Guyana to include a ring-fencing provision for each project. Painting a more graphic picture in one of his reports on Guyana was Director of Financial Analysis for the Institute for Energy Economics and Financial Analysis (IEEFA), Tom Sanzillo. IEEFA estimated that Guyana should receive upward of $6 billion annually by 2028 or sooner, however, the organization believes that due to all of the new costs, Guyana will be shortchanged until the 2030’s, if not longer.

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• 2023, Bank of Guyana, cost, oil, Report, revenue

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