Increased profits for Guyana delayed as Exxon adds US$19B more in cost for new projects approved by Govt.

Sep 15, 2024 News

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Kaieteur News – Guyana’s hope of benefitting from a greater share of profits from the oil and gas sector has been further delayed as ExxonMobil Guyana Limited (EMGL) has added another US$19B in development costs for the country to repay.

This was revealed by Vice President, Bharrat Jagdeo on Thursday, during his weekly press conference at Freedom House, Robb Street, Georgetown.

The Chief Policymaker for the petroleum sector told reporters that presently some US$7B is in the cost bank to be repaid by Guyana. While those costs are likely to be recouped by the Stabroek Block partners by the end of this year, the country will still continue to receive a meager share of the revenues generated in the Stabroek Block.

Jagdeo explained, “Seven odd billion (US-dollars) remains in the cost bank at this time. So I said to them (the technical staff), what about the approved projects, because only some elements of the cost of the approved projects would have been in the cost bank already. S what if you were to include the full cost or the estimated cost of all the approved projects. How much more would you have to add to the cost bank and they gave me a figure of about US$19B to be added.”

The Vice President said the additional US$19B relates to costs associated with Yellowtail, Uaru and Whiptail- Exxon’s fourth, fifth and sixth projects, respectively. Additionally, he noted that a “small balance” is also remaining on the Gas-to-Energy project.

While the combined US$26B will compensate the Stabroek Block partners for the investments made to date, the government of Guyana has been approving more projects which not only inflates the cost bank but delays the country from receiving more profits.

Under the 2016 Petroleum Agreement, the Stabroek Block partners can deduct up to 75% of the monthly production to recover the investments made. This condition will continue to apply until the oil companies’ costs have been fully compensated. In the meantime, Guyana will continue to receive 12.5% profit and a meager 2% royalty.

During the first half of this year alone, Exxon and partners took US$8.5B from the Stabroek Block. A whopping US$7.5B alone was deducted for cost recovery while the partners gained approximately US$1B in profits. Meanwhile, Guyana received US$1.2B during the same period, according to the government’s Mid-Year Report.

Approval of more projects

It should be noted that while US$19B is expected to cover the cost of the recently approved projects, government is likely to issue its approval for the seventh development, Hammerhead, soon. ExxonMobil Guyana filed an application seeking government’s approval in June this year. Once the company receives the green light, those expenses will be added to the cost bank, further delaying Guyana’s probability of receiving more profits through the PSA.

This is particularly so as the government refuses to implement a ring-fencing provision. This condition, if applied to new projects, would require Exxon to use the revenue from a specific development to cover those expenses. When the costs have been recovered, Guyana would then receive 50% of all the revenue generated at that project.

To date, the country could have been receiving 50% of the revenues from the three projects currently producing oil, Liza One, Liza Two and Payara since the costs recovered amount to more than the combined price of the three developments.

Opposition concerned

The main political opposition, the People’s National Congress Reform (PNCR), recently voiced its concern over the government’s rush to approve more oil projects, further delayed Guyana’s chance to acquire a greater share of revenues.

At a news conference last week, the PNCR recalled that both Vice President Bharrat Jagdeo and President of Exxon Guyana Alistair Routledge had indicated earlier this year that Guyana’s share of revenues will increase in the very near future as the company recovers more and more of its investment.

“Accordingly, in our March press conference, we had called on the government to release the company’s combined cash flow statement of its first five developments (from Liza to Uaru). We had cautioned then that “The PPP government, in its remaining time in office during this tenure, must ensure this projection materializes to the fullest extent possible… It must therefore not rush to approve new oil projects in the Stabroek Block, which would drive up cost-oil and thereby deny Guyana the chance to acquire a greater share of revenues,” the PNCR said.

The party noted that the government must explain how the Guyanese people will obtain more oil revenues in the next few years from a reduction in the company’s cost of oil even as the company spends more on additional exploration, appraisal and development.

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• approve, cost, delayed, profits, Projects, recovery

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