Guyana could earn higher oil revenues early once cost bank retired – Jagdeo

– says earlier predictive models used lower oil prices than current market

The cost bank and the contractual requirement for oil giant ExxonMobil to recover its investment, is one of the primary reasons Guyana’s current take of the profits from the Stabroek Block is 14.5 per cent. According to Vice President (VP) Bharrat Jagdeo, however, there is a possibility that Guyana’s share can increase dramatically, ahead of schedule.
Jagdeo was at the time responding to questions during his most recent press conference, where he explained that based on current oil prices and if they are able to withstand the test of time, the cost bank can actually be retired early and Guyana can gain a greater stake of the oil revenue.
“Oil prices fluctuate. So, they may go down for a short period, but they may become elevated for other periods too. I argued that because the model was run on a $50 per barrel oil in the past, that some of the earlier models that we saw, there was a time frame for retiring the cost bank, based on $50. At oil prices now, way above that, the cost bank will be retired faster,” the VP explained.

Exxon, through its local subsidiary Esso Exploration and Production Guyana Limited (EEPGL), is the operator of the Stabroek Block, and holds 45 per cent interest in the Block. Hess Guyana Exploration Ltd holds 30 per cent interest, and CNOOC Petroleum Guyana Limited, a wholly-owned subsidiary of CNOOC Limited, holds the remaining 25 per cent interest.
The Liza Phase One, Liza Phase Two and Payara projects, which are producing overall more than 600,000 barrels of oil per day, account for the three Floating Production, Storage and Offloading (FPSO) vessels operating in Guyana’s offshore Stabroek Block.
ExxonMobil has been present in Guyana since 1999, and initiated exploration activities in 2008. According to the provisions of the 2016 Production Sharing Agreement (PSA) signed under the former A Partnership for National Unity/Alliance For Change (APNU/AFC) Government, 75 per cent of gross revenue goes to cost oil, while Guyana receives a total of 14.5 per cent from the remaining revenue and royalty, and Exxon earns 10.5 per cent.
In order to ensure value for money, the People’s Progressive Party Civic (PPP/C) Government been auditing Exxon’s cost oil expenses, to ensure that only valid expenses go into the cost bank. In 2019, British firm IHS Markit conducted an audit of ExxonMobil Guyana Limited’s (EMGL) cost oil expenses incurred between 1999 and 2017 from its operations in Guyana, and flagged US$214.4 million as questionable costs. At present, the two sides are expected to head into arbitration.
Meanwhile, there are two more oil audits of Exxon’s expenses in Guyana.
In the second audit, done by a consortium of local and international firms, VHE Consulting, for the period 2018 to 2020, Exxon has responded to the audit findings.
According to Natural Resources Ministry in its latest update on the matter, VHE is responsible for reviewing this response, as part of its contractual obligations, and that process was ongoing. Moreover, VHE Consulting also won the contract to conduct the third cost oil audit for 2021 to 2023.
Meanwhile, under the new conditions of the model PSA that the PPP/C Government has implemented, the cost recovery ceiling has been lowered from 75 per cent to 65 per cent.
This is in addition to including terms for all future PSAs to feature the retention of the 50-50 profit-sharing after cost recovery; the increase of the royalty from a mere two per cent to a fixed rate of 10 per cent, and the imposition of a 10 per cent corporate tax.
Additionally, Guyana stands to benefit from as high as US$20 million signature bonuses for the deep-water blocks, and US$10 million for the shallow-water blocks, based on the model PSA.
The model PSA is being applied to future oil contracts, which will likely be signed once the Government reaches agreements with the companies that were successful at Guyana’s inaugural oil block auction.