Each household in Guyana lost $1.7M in 2024 from Govt’s refusal to apply 65% windfall taxes on Exxon’s excess profits

Dec 22, 2024 News

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Kaieteur News– Each household in Guyana lost $1.7M in 2024 through the Government of Guyana’s refusal to implement a 65% windfall tax on the excess profits currently being earned by American super major, ExxonMobil.

A windfall tax does not violate petroleum agreements since it is applied to the excess revenue earned. This means that the expected income of a contractor is not affected in any way.

Oil producing countries around the world, such as Canada, the United Kingdom and the United States among others had imposed this tax on the massive excess revenue being enjoyed by the oil companies as a result of higher oil prices.

In Guyana’s case, the country’s Chief Policymaker for the sector, Vice President, Bharrat Jagdeo is adamant that this mechanism cannot be applied to ExxonMobil as it would constitute a breach of the 2016 Production Sharing Agreement (PSA) with Exxon and its Co-Venturers. This argument has however already been set aside by Trinidadian Energy Specialist, Anthony Paul who clarified that windfall taxes do not violate petroleum agreements.

Paul explained, “Since all contracts must abide by national law and since such an instrument does not violate existing contracts, Windfall Profits Taxes provide a simple and fair mechanism to ensure that countries get their just dues.”

He was keen to note that Stabilisation clauses in contracts are based on an agreed economic model which contemplates a rate of return to the contractor, based on a projected price or pricing formula for the commodity on an agreed market.

However, Paul explained that when the price of the commodity is far higher than the projected price in the economic model, the extra profit is referred to as a windfall. To this end, he noted, “Since the market conditions are generally beyond the control of the producer, it is the commodity itself that creates the higher revenue, not any action of the contractor.”

It has therefore become customary in jurisdictions around the world, including developed countries, to introduce a Windfall Profits Tax to ensure that the owner of the resource gets a bigger share of the profit, in line with the disproportionate contribution the resource makes to the increased revenue, the Energy Expert said.

$1.7M lost per household

Guyana currently has approximately 300,000 households, each of which could have received $1.7M had the GoG impose a 65% windfall tax on Exxon.

Daily production this year averaged 630,000 barrels per day (bpd), at an average oil price of US$72. It should be noted that Exxon needs to earn at least US$55 per barrel to recover its investment and make a profit.

This therefore means that for this year, Exxon generated about US$16,556,400,000 as a result of the higher oil prices. At the projected price of about US$55 a barrel, the company would have earned US$12,647,250,000.

As such, this year approximately US$3,909,150,000 in windfall taxes went to the company.

Had Guyana implemented a 65% windfall tax on the excess profits, the country could have benefitted from an additional US$2,540,947,500 which amounts to almost $1.7M (GYD) for each of the 300,000 households.

Govt’s refusal

In the absence of a competent and experienced Petroleum Commission, Guyana’s oil sector is managed predominantly by VP Jagdeo who has pointedly said the country will not be pursuing this provision at this time.

He previously explained that the country will instead allow Exxon to enjoy the excess profits being earned from the high oil prices at this time so that the company could recover its investments faster.

“It means you’re amortizing the expenses faster so you can get to a higher share of the profit. You’re just amortizing the expenses faster and that’s what’s happening. So if it took you 10 years to amortize the investment at $50, and just to give an example, the price for oil, it may take you 7 years to do it at $75 and that means thereafter you were entitled to 52%, crudely putting it, of their revenue. It’s a simple method,” he said.

As for the second largest political party in Guyana, the People’s National Congress Reform (PNCR), they have indicated that the circumstances presently do not warrant the implementation of such a provision.

Advisor to the Leader of the Opposition on Economics, Elson Low explained that the whole discussion of windfall taxes came about when the PNC was looking at the possibility of oil being sold at $170 per barrel, which would have brought about a substantive change to the entire industry. “So, I would say that given that we are not looking at such a substantial change to the industry it’s not something that we are looking at. It is not something that we have raised in our oil policies. However, looking at our previous statements it is only in a very bizarre scenario that we would incorporate that into the model, but I would say that windfall taxes are a bit beside the point,” Low reasoned.

(Each household in Guyana lost $1.7M in 2024 from Govt’s refusal to apply 65% windfall taxes on Exxon’s excess profits)

(Exxon’s excess profits)

 

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• household, Jagdeo, lost, tax, windfall

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