Chartered accountant and commentator Christopher Ram has added his voice to recent concerns that the National Resource Fund (NRF) does not reflect the full total of petroleum royalties due to Guyana.
In a column that appears in today’s Stabroek News, Ram said that based on his calculations, some US$73.8m of royalties are unaccounted for.
He noted that a letter by Professor Kenrick Hunte that appeared in Kaieteur News had raised the issue. A letter by Candice Dorwish in the February 25, 2024 edition of Stabroek News had also raised this concern.
Ram quoted the rejection by Vice President Bharrat Jagdeo of Hunte’s argument. “Royalty is calculated on production minus, so total crude production minus the crude used in the operations for transport and on the FPSOs (Floating Production Storage and Offloading vessels). In Guyana’s case, the FPSOs are operated by gas, so there is no deduction whatsoever, so royalty is calculated on the basis of total production and total sales. There is no deduction whatsoever. Every month, they have to confirm what the average price would be, the weighted average, and the [government] gives approval for that”.
Ram in response said it does not appear that the Vice President has bothered to read the 2016 Production Sharing Agreement (PSA), let alone its reference to the Petroleum Exploration and Production Act and its definition of “petroleum”.
“In fact, the very first item in the definition of `petroleum’ is this: `any naturally occurring hydrocarbons, whether in a gaseous liquid or solid-state’. Does the country’s petroleum czar not know that billions are charged to operations annually for supplies to the oil companies by at least one oil distributor? His answer was not only completely wrong, but shockingly misinformed, misleading and a total misrepresentation of reality. If this is Jagdeo’s knowledge of the petroleum sector, then President Ali has to step in, lest things get worse than they are”, Ram argued.
In his calculation of the royalties, Ram pointed out what the PSA prescribes about “royalties”.
‘The Contractor shall pay, at the Government’s election either in cash based on the value of the relevant Petroleum as calculated pursuant to Article 13 or in kind, a royalty of two percent (2%) of all Petroleum produced and sold, less the quantities of Petroleum used for fuel or transportation in Petroleum Operations, from all production licenses subject to this Agreement.”
He said that even the most diligent journalist or forensic investigator cannot compute the royalty payable to Government in the absence of the cost of petroleum used for fuel or transportation in Petroleum Operations. He said that there is no real solace in the fact that the effect on royalty is 2% of that total.
“The other problem is that we will not know the value of petroleum sold by Exxon, Hess and CNOOC until their 2023 numbers are released in the form of audited financial statements within the next couple of months. To reduce the margin of error therefore, I have used just 2022 data from the financial statements of the three companies, plus the proceeds from sale of Government share of profit oil and apply to that total, a 2% for royalty”, he said.
He added that what is apparent is that there is indeed some US$73.8m of royalties unaccounted for and “one can speculate whether this is all to do with the implausible absence of the cost of fuel used in production or transportation, or in the difference in the accounting methodology used – accrual in the case of the oil companies and cash basis in the case of the NRF. Yes, the numbers are lower than Hunte’s, but he extrapolated to the end of 2023 when production, and therefore royalty soared. His numbers ought not to be discounted or dismissed”.
Ram concluded his column by saying: “I repeat again, unless President Ali puts a Petroleum Commission in place, Guyana’s incompetence in oil and gas will continue to be exploited at the national expense”.
Dorwish had said in her letter that analysts attempted to reconcile the 2020-2022 Guyana Natural Resource Fund royalties’ balance but to their dismay, “there is a significant shortage of royalty payments in the years 2020 and 2022, 23% and 13% respectively. The Natural Resource Fund appears to be missing an approximate GY$5.6B (US$27M) in royalties, payments that Exxon and its affiliates should have made”.
