Regardless of the number of wells explored, Guyana’s share of profits remains tied at 14.5%

0

Dear Editor,

I am referring to a letter published in the Stabroek of Sunday July 3, 2022, captioned: “Depending on the number of wells explored, Guyana’s 14.5% catch will increase at some point in the future”, and I would like to make a few observations.

First, the author states that, ‘…Guyana’s catch will increase beyond 14.5% of total revenue at some point in the future. Exactly when this will happen depends on the number of wells explored before the expiration of the contractor’s exploration license…’ In response, there are no legally binding clauses or economic framework in the contract that supports this result, so this prediction is just a ‘false hope’. Moreover, the pious speculation is further bolstered when the author confirms that he doesn’t know “…when this will happen…” And again, more troubling is the notion that more wells explored will increase the share of 14.5 % for Guyana.

Editor, may I remind the author that 14.5% of revenue is written into the contract and that increasing the number of wells explored, which may lead to increased production, will not change the 14, 5% contractual. Instead, it will shorten the number of years it takes to deplete the oil reserves in that hole. Therefore, if the government had accepted tax-exempt status for 20 years and all the oil is extracted in ten years, there will be no taxes for Guyana. We have already had this experience with other non-renewable resources and we should not repeat it.

Second, the author takes issue with the manner in which it is stated that “EEPGL’s share of total revenue is 5.896 times that of Guyana’s share… (lamentingly)… the author did not take this into account” …the cost of production…” (and concluding that)…’ this is a complete non sequitur and does nothing to enlighten the reader on this very important issue. ‘

In response, it is unfortunate that table (a) was not printed in the letter (space limitations, perhaps), but a clarification will now be provided based on the data in table (a) unpublished . The total revenue (TR) is equal to the price (P) multiplied by the quantity of oil (Q): TR = PQ. In 2020, the total revenue (TR) is equal to 176,088,088 million dollars. plus 50% of the total Profit Oil. The total oil profit is G$M44,022, and therefore 50% would be G$M22,011. Therefore, the net take of Guyana’s total revenue = royalty + profit Oil = G$M25,532. is G$M25.532, so it follows that the total share of EEPGL is: G$M176.088 – G$M25.532 = G$M150.556. Using this information, it is clear that Guyana’s share of total revenue is 14.4995%. and EEPGL’s total revenue share is 88.5%. Dividing EEPGL’s share (88.5%) by Guyana’s share (14.4995%) gives 5.8966 which can be transformed into an equation: barrels of oil EEPGL = 5.8966 (barrels of Guyanese oil). This sharing model between EEPGL and Guyana implies that each time Guyana receives a barrel of oil, EEPGL receives 5.8966 barrels of oil. Guyana being the sole owner of the resource, this is the inequity identified; and it is based on the parameters of the contract: 14.5% for Guyana and the rest for EEPGL. Given this contractual outcome, the author apologizes for the main issue, stating, “To be clear, I am not commenting on whether or not Guyana receives a fair share of the oil produced.” In response, it is clear that our outlook differs, as receiving a fair share of our oil is the primary concern for me and most Guyanese.

Published data confirms that Guyana has eleven billion barrels (Table 1 below) of oil and from this I have produced two scenarios; the first is the current production sharing model in which Guyana’s (GS) share is 14.5% of total revenue and EEPGL’s share is 85.5% of total revenue. The second scenario is to maintain cost recovery at 75% of total revenue for EEPGL and Guyana’s share at 25% of total revenue, i.e. three barrels of oil for EEPGL and one barrel of oil for Guyana, whenever four barrels of oil are produced. At a price of US$65.0 per barrel, the full value of oil is revealed (Table 1).

In conclusion, my main objective for this industry is that Guyana receives a fair share of the oil produced; and the business model used must be compatible with environmental protection. Additionally, and as stated earlier in my last letter, building and maintaining a transparent system that monitors exploration, investment, employment, day-to-day production, marketing, and hiring the best and the brightest, regardless of their political affiliations, is the best model for Guyana. This is the hill we must climb.

Unsurprisingly, the traditional financial audit will not address these issues because this approach is limited; instead, this work in the oil industry must be done in real time. Saudi Arabia, a major oil producer, monitors production daily; and that should be our goal, if we are to build a nest egg for our future generations. Finally, in the words of Bill Pilgrim: Can we do it? Yes we can!

Sincerely,

C. Kenrick Hunte, Ph.D.

Professor and former ambassador

Share.

Comments are closed.