Guyana lost US$1.8B in 50% windfall tax from ExxonM in 2023

Jul 04, 2024 News

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Kaieteur News – Guyana could have gained US$1.8B in windfall taxes from the massive profits recorded by ExxonMobil and its partners in the Stabroek Block last year.  The excess income generated as a result of higher oil prices is referred to as windfall revenue. Oil producing countries around the world have applied taxes to the huge windfall profits being earned by petroleum companies but policy makers in Guyana are adamant against the introduction of such fiscal regulations here.

EMGL currently has three Floating, Production, Storage and Offloading (FPSO) vessels in operation. These vessels are producing more than 640,000 barrels of oil per day.

The company in its 2023 Annual Report highlighted that a total of 142 million barrels of oil were produced and sold last year; Guyana received 17 million profit oil barrels. The price of Brent crude oil averaged US$83 per barrel in 2023.

According to project documents seen by this newspaper however, Exxon anticipated an average oil price of US$53 per barrel. At this rate, Exxon would have made US$6.6B on the remaining 125 million barrels produced in 2023. Instead, at US$83 per barrel, some US$10.4B in revenue was generated. The higher oil prices therefore allowed Exxon and Co-Venturers to benefit from a hefty US$3.8B in windfall revenue.

Had Guyana followed in the footsteps of other large producing oil states and heed the advice of international experts to apply a 50% windfall tax on these massive gains, the country could have raked in an additional US$1.9B in revenue.

Notably, the windfall taxes this country lost amounts to more than the actual revenue deposited into the Natural Resource Fund (NRF) in 2023. It was reported that US$1.6B in profit and royalties was paid to the Fund, last year.

Guyana has often been praised by the American oil giant for its high quality crude oil. In fact, only last month, Kaieteur News reported that the cost to produce a barrel of oil in Guyana is among the lowest in the industry.

The International Energy Forum (IEF) and S&P Commodity Insights in a June 2024 report titled, “Upstream Oil and Gas Investment Outlook” sheds light on the changing dynamics of global oil production costs, with particular emphasis on Guyana’s position as a cost-effective producer in the industry.

The report reveals that the Middle East boasts the lowest average breakeven price at approximately US$30 per barrel Brent, followed closely by Guyana with a breakeven price of US$36 per barrel Brent. In contrast, the average new well in the United States requires around US$57 per barrel Brent.

The term “breakeven” simply refers to the average cost required to pay back investors and earn a return.

Windfall taxes

Oil companies operating in the United Kingdom (UK) will continue to face 75% taxes on the massive windfall of revenue they are poised to receive. It was recently revealed that the Chancellor has extended the Energy Profits Levy (EPL), the windfall tax on UK oil and gas profits, by a year to 31 March 2029.

Other states like Germany in 2022 introduced a 33% windfall tax on the record shattering profits of oil and gas companies. The Indian Government in 2022 also announced that it would further be taxing the profits of petroleum companies in a decision to move up the windfall tax on crude oil from 9,500 rupees (US$116.49) per ton, to 10,200 Indian rupees (US$125.22) per ton.

The energy profits levy have been introduced in several other countries like the United States of America (USA), Australia, Canada and Mongolia.

Previously, Vice President Bharrat Jagdeo told reporters that could not be replicated in Guyana since, “we are bound by a PSA (Production Sharing Agreement) with very specific terms on the taxation side.”
To this end, he suggested “if you change the taxation here, it’s considered a breach of the contract.”
Seeking to draw a distinction between Guyana and the ABC countries, Jagdeo suggested that those companies would have been operating for decades in those jurisdictions and as such would have come under the standard tax regime for the respective countries within which they operate.
According to the Vice President, in such a situation, the parliaments of those countries could by way of legislation easily make the changes to institute for example a windfall tax.
He was adamant, this is the key reason the same cannot be done in Guyana, if the administration did in fact go ahead and make the legislative changes it would be considered a breach of the contract, “we would run afoul of the agreement.”

It must be noted that both Exxon and the government have diverted from the terms of the PSA on provisions such as audit and the need to conduct a feasibility study for the utilization of the gas resources, yet the administration continues to make excuses to engage the company for the country to benefit more from its resources.

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• Guyana, lost, oil, profits, windfall

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