Introduction
As far as I can determine, a standard formulation of Guyana’s fiscal regime for its petroleum sector would describe this as ‘The Terms and Conditions that are applied to both the Owner (State) and Contractor (Exxon and its partners) for conducting their business within an integrated framework; from exploration activities, right through the production chain (upstream to downstream), as well as trading’. In other words, those laws and regulations that govern the distribution of economic benefits (gains) derived during this integrated business process. Such a regime would, therefore, determine 1) production and sales revenues generated; 2) allocation of risks between Owner and Contractor; 3) profitability of the petroleum business; and 4) the sustainability of investment flows to the sector.
When defined in this comprehensive manner, energy analysts share the consensus view that petroleum fiscal regimes are, principally, a function of five variables, namely, 1) its clarity/ stability/governance; 2) the instruments/tools/taxes utilized; 3) the administration/governance; 4) the broader economic context; and 5) the characteristics of Guyana’s petroleum finds (especially crude quality, location, and size). The metrics of these variables are typically measured using a variety of techniques, including interviews, expert-opinion assessments, surveys and the use of proxies. Given the variables identified, one can safely conclude that there are many “known unknowns” which help determine fiscal outcome.
On this point, readers should recall the unknowns and therefore risks, which are deeply embedded in Guyana’s petroleum sector. These include 1) lengthy exploration/development phase; 2) geological risk (offshore location and depth); 3) geo-political risk (Venezuelan border controversy); 4) environmental; 5) resource depletion/exhaustion; 6) traditional global price/output volatility/ uncertainty; and 7) political risk (as captured in the notions of Guyana economic nationalism versus foreign exploitation).