Guyana this year could have received US multi-billion dollars in oil profits as three project costs already recovered

Jun 14, 2024 News

This year…

Kaieteur News – Although ExxonMobil Guyana Limited (EMGL) has recovered more than US$19B to date from Guyana’s oil revenues generated in the Stabroek Block- enough to cover its investments in the three producing oil projects, the country will not benefit from a higher share of its resources this year.

Liza One, pegged at US$3.5B, Liza Two which costs US$6B and the US$9B Payara project could have each been paid off in 2023 had Guyana ring-fenced the oil projects in the Stabroek Block. A ring-fencing provision would mandate each project to pay for itself. After the cost of the project has been repaid, Guyana is posed to receive 50% of the revenues generated at the project. This means that revenue flow to the Natural Resource Fund (NRF) would significantly increase.

In the absence of this key principle, ExxonMobil is free to use the revenues from these producing fields to fund projects that are yet to commence production or invest in its exploration activities across the Block.

On Thursday, the company confirmed that as of the end of 2023, US$19B in costs was recouped. The three projects currently in operation carry a collective price tag of US$18.5B. In this manner, the three project costs could have been cleared in December 2023, positioning Guyana to receive more profits this year from the oil and gas sector.

In 2023, the Stabroek Block generated approximately US$11.8 billion, of which US$8.4B was deducted by Exxon for cost recovery. Meanwhile, Guyana barely received US$1.6 billion in oil money that year.

The 2016 Production Sharing Agreement (PSA) stipulates that 75% of all revenues generated each month can be deducted towards cost recovery. Costs not recovered in that particular month are carried over to the next month while the remaining 25% is then shared equally between Guyana and Exxon as profits.

Only yesterday Kaieteur News reported that the International Energy Agency (IEA) in a 2024 Oil report highlighted that demand for oil will slow in the coming years. It was explained the clean energy transition and the “stellar growth” in global EV sales are expected to lead to slowing oil demand growth with worldwide consumption set to peak in 2029 and begin falling the following year.

World oil demand is being tempered by the clean energy transition, says the IEA, which has been a vocal proponent of a faster energy transition in recent years.

EV sales, which – according to the IEA – continue to surge, fuel efficiency improvements in ICE vehicles, structural economic shifts, and a decline in oil use for electricity generation in the Middle East are all set to start offsetting this decade the higher oil demand from the petrochemicals sector. “As a result, the report forecasts that global oil demand, which including biofuels averaged just over 102 million barrels per day in 2023, will level off near 106 million barrels per day towards the end of this decade,” the agency said.

According to the report, such a massive oil production buffer could usher in a lower oil price environment, posing tough challenges for producers in the US shale patch and the OPEC+ bloc. Guyana, as a fairly new oil producer should be particularly mindful of the effects a slump in oil price can have on its economy, especially since the country has agreed to forego early profits from the industry by not ring-fencing its projects.

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.”

ExxonMobil, Guyana, oil, profits, ring-fencing

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Guyana this year could have received US multi-billion dollars in oil profits as three project costs already recovered

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Guyana this year could have received US multi-billion dollars in oil profits as three project costs already recovered

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