Dear Editor,
Dr Tulsi Singh who has had a long experience with petroleum, in a letter in SN on March 2nd `Guyana got 17.4% of oil sales in profit for 2020’, responded enthusiastically to the announcement by Vice President Bharrat Jagdeo that Guyana has so far received some US$21.2 million as royalty and US$184.9 million as its share of profit oil under the 2016 Esso/Hess/CNOOC Petroleum Agreement. Dr. Singh correctly calculated that that sum represents 19.44% of total oil revenues for the period and informed the public in his letter that he would be seeking confirmation of his numbers from Exxon. He also used the opportunity to challenge those persons who have been asserting that Guyana’s share of profit oil (excluding royalty) will be no more than 12.5% of sales for some years.
Editor, I confess to being one of those persons. In my Oil and Gas column (#64) of November 23, 2018, extrapolating from the then available financial statements of the three Contractors, I set out my own estimates of pre-production costs at approximately G$500 billion. On that basis, I opined that “[w]hat these estimates show is that total pre-production costs will not be recovered in the first three years of the project and therefore Guyana will likely only receive the guaranteed minimum profit oil and royalties of 14.25% of sales (2% + (12.5% of 98%)” Of course, we are dealing with several moving parts, including volatile oil prices and production costs, the recovery of which can be realised in a shorter or longer period depending on the movement of oil prices and cost of production which I had estimated at US$60 and $35 per barrel respectively. Unfortunately, and disappointingly, despite its promises, our own Government has not demonstrated any willingness to disclose, leaving us to guess what the cost of production is likely to be, and the composition of that cost.
Once again, we have numbers that confuse rather than clarify. For the 19.44% to apply, it is either that all pre-production costs have been recovered in about one year (an impossibility), or that the Oil Companies capped their claim for the recovery of expenditure substantially below the 75% ceiling, leaving the balance to be recovered in future periods. If that is indeed the case, the measly 14.25% will stretch beyond my conservative estimate of three years.
If so, then apart from Dr. Singh’s excitement that “Guyana got more than [12.5% profit share] in its first full year of production” being premature, the disclosure by the Vice President was, perhaps inadvertently, incomplete and therefore misleading. Guyanese are once again left to indulge in unnecessary speculation over basic facts concerning the sector. Exxon must be feeling comfortable and reassured while the unease of Guyanese continues.
Yours faithfully,
Christopher Ram
